This is the third article in a series of blogs that we are publishing on the back of Stockopedia research into the performance of IPOs (initial public offerings). The IPO Survival Guide examined 258 IPOs between 2016 and 2021 - and one of the key findings is that exposure to the two influential factors of Quality and Value can have an important bearing on the investment success of an IPO.

New company IPOs are often heavily promoted - but the way they are structured and priced can leave private investors at a big disadvantage. Not only that, but with only limited availability of historic and forecast data, investing in newly-listed companies can be a minefield.

Stockopedia research into the performance of company IPOs between 2016 and 2021 found that, on average, they tend to perform well for up to six months. But thereafter, and for a period of up to five years, the returns become much more variable and the hit rate for investing in a successful one falls well below 50%.

This chart shows how, on average, the longer you hold a new IPO the higher the chance that it will eventually become a loser.


But these statistics hide the fact that there are some important drivers that can improve the chances of success. In particular, getting an early assessment of a stock’s Quality and Value can have an important influence.

Factor investing and IPOs

Quality and Value are two of a handful of important ‘factors’ that academics and industry professionals have shown to be influential drivers of stock market returns over time. Whilst there hasn’t been much academic research into the role of factor investing when it comes to IPOs, our study suggests that it can make a big difference.

With little financial and technical information available early on, it can be hard to gather data about the value, quality, momentum, growth, or income attributes of a company at the time of its IPOs. The prospectus documents will provide an idea about its overall financial health, but the real picture will only emerge a few months later, when the interim or annual results are published.

With this in mind, we assessed the Quality and Value characteristics of IPOs using Stockopedia’s StockRanks - specifically the dual-factor Quality & Value Rank (QV Rank). Our goal was…

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