This is an area in not familiar with, and as I watched SHAK's IPO on Thursday, became very curious about.
The IPO was priced at $21.00 per share, and immediately upon trading it rocketed past my $28.00 buy order all the way to $50-52.
Now, surely traders didn't look at $21.00 per share compared to Shake Shack's 63 locations and say "$11M per restaurant? No way, they should be valued at $28M per as soon as the market opens."...right?
So how does this work? It may seem like a very basic question but I'm curious what drives a +120% move in a matter of 2-3 seconds, when it can't possibly be the company's fundamentals.
All about supply and demand brotha. The bankers are gonna underprice the offering by a bit so demand gets built up and those who are special enough to get allocated shares will get a nice gain.
That latter piece is sort of what I figured; if we think the value is $X, let's price it at some number less than $X so our friends/clients can get an instant bump.
Yes. But they also want it to "trade well" so the company can come back to the market for follow-on offerings (and do the deal with them). That means the stock should get a small bump to show there's still sufficient demand, but not go up too much -- otherwise the company leaves a lot of money on the table. That $25 pop went in the pocket of the IPO investors instead of the company.
Small float IPO.
My recommendation is to look at the available float (how many shares they offered) vs how many shares were traded on day1.
Equity bankers know that the small-float IPO is the secret sauce. It allows them to purposely limit the supply of shares and throw off the supply vs demand ratio.
In this case, I think they took it to the max by only offering 10% of shares to the public (if i recall correctly)
Read these:
http://epicureandealmaker.blogspot.co.uk/2011/05/jane-you-ignorant-slut… http://epicureandealmaker.blogspot.co.uk/2011/05/dan-you-pompous-ass.ht…
Timeline of an IPO (Originally Posted: 02/04/2017)
In light of the recent snapchat IPO, can someone provide a brief timeline of the IPO deal process from sourcing to the first day of trading? thanks
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