Commentary: Price Sensitive Deals Not Always a Poor Sign

Five of seven IPOs that priced this week came below range — is this a bad sign for the IPO market?

The short answer may be be no.

And the results explain why.

But first, let’s look at the five deals that showed price sensitivity.

The five IPOs that priced under the offering price consisted of three biotech companies, a Chinese offering and a debt-ridden software company.

Two of the three biotech companies (PHAS, LOGC), while heavy with insider buying, were considerably early in their drug pipeline lifecycle. The other biotech, Osmotica Pharma (OSMT) had an FDA approved drug but with potential significant litigation pending. Getting investors in at even more of a “discount” with these offerings creates benevolence while using the fine art of pin point pricing. This in “many” cases  may be a win-win for the company and investor. Certainly we are not naive to believe that this is an ideal condition and that the IPO is guaranteed daylight–as many are still poorly priced!   It is our opinion that biotech companies are generally at the mercy of buy-siders as the early-stage results can only have so much “goodwill” post-IPO.  Biotech stock prices live and die by the news-cycle.

As for the Chinese offering, Niu Technologies (NIU), this is a region where investors are particularly skeptical. The geo-poltical scene is in the headlines and Chinese stocks have been underperforming for months. We have seen IPOs with ‘hyper-growth’ rocket up and fall down (see Pinduoduo). Niu Technologies is a Chinese scooter company with great growth numbers — but not good enough for investors to buy-in to the story at the original range. A $9.00 pricing produced an $8.50 first trade and a topsy-turvy opening day of trading.

And finally, the debt ridden software company, Solarwinds (SWI), came two-dollars below its initial range. Software valuations are getting thrown under the microscope with the latest sell off this October. The ‘uncertainty’ discount not only came into play but the fact that this company was much more mature than “explosive” software companies that we have seen debut thus far in 2018  played a factor.

Overall, price sensitivity with promising first day performance is a good thing. IPO investors are able to name their price and companies have obliged. It’s risk-on … but at the right price. Furthermore, the stocks have opened with nice premiums (for the most part) and held their own in the aftermarket.

It is almost a cry that the current market sell-off may only be a short term “event” and that blue skies are still ahead.

Price sensitivity? No Problem.

(At least this week).