Tag: Motley Fool Australia

The breathtaking rally in ASX bank stocks ensured that financials were the best performing sector on the S&P/ASX 200 Index (Index:^AXJO) on Wednesday.

Adding to the “wow factor” was volume. The big surge in big bank share prices was on the back of very high turnover.

The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price led the charge with an 8.6% rally to $17.94. Westpac Banking Corp (ASX: WBC) is close behind with an 8% rise to $17.61, while National Australia Bank Ltd. (ASX: NAB) gained 7.8% to $17.94.

The Commonwealth Bank of Australia (ASX: CBA) share price was last in line but shareholders are unlikely to complain about its 4.9% jump to $64.30.  

This buying frenzy suggests a couple of things about our market and where we might be heading.

Pent up demand for bank stocks

The first is that institutional investors who have been underweight banks may now be having a change of heart.

While it’s hard to tell who was frantically buying bank stocks today, many professional investors had shunned the sector due to worries that a wave of loan defaults from the COVID-19 pandemic would bring the sector to its knees.

But a string of better than expected economic data and updates from numerous ASX stocks exposed to discretionary spending showed things might be springing back to life as coronavirus restrictions are eased across Australia.

This is further evidence that the worst of the coronavirus fallout is behind us and the big discount on ASX bank stocks are starting to unwind.

Bank dividends on the way back up

This is why three of the big banks are outperforming CBA. These stocks were trading at around a 20% discount to book value to reflect their lower quality balance sheet relative to CBA, while the outlier was trading at around 1.5 times book value.

What I also believe is that NAB will be the only bank raising capital during this downturn and that ANZ and Westpac will resume paying dividends at their next profit results.

CBA shareholders are the lucky ones. Our largest domestic bank has a different reporting cycle and didn’t have to declare its profit and dividend during the height of the COVID-19 disaster.

This doesn’t mean it won’t lower its final dividend in August, but even if it does, I suspect it won’t be as much as the market expects.

Rotation from defensive stocks

The final observation is that investors are using defensive shares to fund their purchases of bank stocks. This includes outperformers like healthcare leader CSL Limited (ASX: CSL) and gold producers like Evolution Mining Ltd (ASX: EVN).

This trend could continue, particularly for healthcare stocks, although I think it would be a mistake to go underweight on gold stocks in this environment.

Foolish takeaway

But this isn’t to say the banks have a clear run ahead. There are questions about what happens when the government’s JobKeeper payment ends and goodwill from loan repayments and rents run out.

There are also concerns about falling house prices as property investors desert the market and structural changes that can shake the foundations of office and retail properties.

However, I think these risks are manageable unless house prices fall by substantially more than 10%, we get a big second wave of COVID-19 infections, or both.

If you have no or limited exposure to the big banks, you should be adding these stocks to your portfolio.

More reading

• 2 outstanding ASX 50 shares to buy today
• Soaring share price: Is CBA a buy?
• ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower
• Why the NAB share price is surging higher today
• Why Afterpay, CSL, Fortescue, & Newcrest shares are dropping lower

Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Evolution Mining Limited, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Is now the right time to be buying ASX bank stocks? appeared first on Motley Fool Australia.

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With the share market now out of its bear market, it could be a great time to start investing.

Even if you only have $500 to invest, I would suggest you consider putting it into shares.

Although it may not seem like a life-changing sum to invest, if you do it consistently you can generate material wealth.

If you were to invest $500 every three months ($2,000 a year) and earned a 9% per annum return, in 30 years your investments would be worth $300,000.

But which shares should start with? I think the 3 ASX 200 shares listed below would be great long-term options for investors:

Altium Limited (ASX: ALU)

I think this electronic design software platform provider could be a long term market-beater. This is due to its extremely positive outlook thanks to its industry-leading software and the tailwinds of the Internet of Things boom. Its exposure to this rapidly growing market looks set to drive strong demand for its software for many years to come. In fact, management is targeting 50,000 software subscriptions this year, but then expects to double it to 100,000 subscriptions by FY 2025. I believe it is well-positioned to achieve this target. Which, combined with its other growing businesses, should support strong earnings growth for years to come.

NEXTDC Ltd (ASX: NXT)

Another top option for investors to consider buying is this innovative data centre-as-a-service provider. As with Altium, the wind is firmly in NEXTDC’s sails right now. This is because of the rise of cloud computing which is driving increasingly strong demand for data centre services. And given how its centres are among the highest quality in the world and strategically situated in key capital cities, I believe NEXTDC is well-positioned to capture this demand. I expect this to lead to strong earnings growth over the next decade as its scales.

Ramsay Health Care Limited (ASX: RHC)

A final option to consider investing $500 into is Ramsay Health Care. Although the leading private healthcare company is not having the easiest time right now, I’m optimistic that these headwinds will ease in the coming months. After which, I believe it is well placed for solid long term growth thanks to the ageing populations tailwind. Ramsay is better positioned than most thanks to its massive footprint. At the last count it had 480 facilities across 11 countries.

More reading

• Top broker says this ASX stock is a better buy than Afterpay
• If the ASX 200 crashes again, which shares should you sell?
• After hitting $50, the Afterpay share price has pulled back. Is it good value?
• The ASX 200 stock hit by the Brazilian COVID-19 wave
• ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you feel like you missed the chance to jump on the surging Afterpay Ltd (ASX: APT) share price, there could be another boat you can catch.

They are big shoes to fill though as Afterpay is the best comeback kid on the S&P/ASX 200 Index (Index:^AXJO) with the stock surging from its COVID-19 low point in March to around $45 this afternoon.

That represents a near 500% gain when other buy now, pay later (BNPL) players have been left far behind.

Afterpay stealing the spotlight

Mind you, the Zip Co Ltd (ASX: Z1P) share price and FlexiGroup Limited (ASX: FXL) share price have also staged a strong recovery, but their 200% odd rebound isn’t quite as exciting as the bounce in Afterpay.

The silver-lining is that FlexiGroup is far more attractively priced than Afterpay even though they both are exposed to similar tailwinds, according to UBS.

Cheaper alternative to Afterpay

“While COVID-19 uncertainties remain, recent feedback has been relatively positive with respect to customer arrears holding stable and resilience in BNPL,” said the broker.

“While near-term earnings risks are high, we believe this is more than reflected in FXL’s price (9.7x FY21E PE, 6.1x FY22E ‘normal year’ PE).”

The latest consumer survey undertaken by UBS also added to the broker’s bullish view towards the stock.

Consumer spending coming back with debt

What the broker found was the spending intentions were holding up better than it feared, even though consumers were looking to dip into savings and take on more debt to fulfill their shopping desires.

That doesn’t sound particularly sustainable to me – but hey, that’s something to worry about later.

There was also a marked increase in the number of consumers intending to use BNPL services. This went up to 7% from 4% in October last year.

Is FlexiGroup a buy?

Further, the survey found that 20% of respondents were looking to reduce the number of credit cards they held and 13% of them nominated BNPL as the reason for this.

UBS is recommending FlexiGroup as a “buy” with a 12-month price target of $1.60 a share, while slapping a “sell” rating on Afterpay as it believes the stock is way overpriced.

If you are looking for other attractively priced stocks to buy for the COVID-19 recovery, you might want to download this free report from the experts at the Motley Fool.

Follow the free link below to find out more.

More reading

• New to investing? Put $500 into these top ASX 200 shares
• If the ASX 200 crashes again, which shares should you sell?
• After hitting $50, the Afterpay share price has pulled back. Is it good value?
• The ASX 200 stock hit by the Brazilian COVID-19 wave
• ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower

Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (ASX: XJO) is having another day in the green. After posting a solid day of gains yesterday (2.9%), the ASX 200 initially fell this morning on open before recovering and moving ever higher. At the time of writing, it’s sitting at 5,781 points – an impressive 27% above the lows we saw in March.

But with the coronavirus pandemic still wreaking havoc across the economy, many investors are starting to fear another market downturn after such a spectacular return to form for the ASX 200.

So if another market crash does hit the ASX, how should we as investors react? More importantly, which ASX 200 shares should we sell?

The first thing that might come to mind are cyclical shares – those companies that tend to outperform in good times but underperform in bad.

These include financials shares like the ASX banks and asset managers such as Magellan Financial Group Ltd (ASX: MFG) or energy stocks like Woodside Petroleum Limited (ASX: WPL). Organisations involved in the construction industry also tend to be cyclical. These include companies such as Brickworks Limited (ASX: BKW) and Boral Limited (ASX: BLD).

If the markets get choppy, should these companies be on your chopping block?

Should you sell ASX 200 shares in a market crash?

Well, here’s where people can be misled by emotion or a false idea of what successful investing is all about. I don’t think any company should be sold in a market crash on the grounds that you might lose money in the short-term.

Owning shares means owning shares of businesses, real businesses. These businesses operate within our economy, which is itself a very cyclical environment.  

If you are happy owning a company (be it a financial, energy or construction company) during good times, then you should be happy owning it through all economic climates. If you’re not, then perhaps you shouldn’t have bought in the first place.

One of the greatest investors of all time, Warren Buffett, still owns some shares that he bought 40 or 50 years ago. He once said his favourite time to sell is never.

That’s the kind of attitude I think all investors should have.

Yes, by all means, sell a company if you’re not happy with the decisions it’s making or if it can’t execute on its growth plans. Sell a company if is failing and you think it will continue to fail or if its values no longer align with your own. But the time to do this is not in the middle of a market crash – when irrational panic is driving market pricing.

Just remember that old phrase about fixing a leaky roof when the sun is shining!

More reading

• New to investing? Put $500 into these top ASX 200 shares
• Top broker says this ASX stock is a better buy than Afterpay
• After hitting $50, the Afterpay share price has pulled back. Is it good value?
• The ASX 200 stock hit by the Brazilian COVID-19 wave
• ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post If the ASX 200 crashes again, which shares should you sell? appeared first on Motley Fool Australia.

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Earlier today I looked at a few shares which have shaken off pandemic concerns and surged to record highs this week.

Unfortunately, not all shares have been so fortunate. A number are still trading materially lower than their 52-week highs.

For example, the two shares below are down very heavily from their highs. Here’s why I think they could be bargain buys:

Aristocrat Leisure Limited (ASX: ALL)

The Aristocrat Leisure share price has risen strongly this month but is still trading 30% lower than its 52-week high. Investors have been selling the gaming technology company’s shares because of the closure of casinos globally during the pandemic.

While these closures have been a blow, it is worth noting that it has given its lucrative digital business a huge lift. The company has millions of daily active users playing its games and generating significant recurring revenues. And with casinos now reopening, I expect demand for its poker machines will start to rebound. Overall, I feel it is well-positioned for solid long term growth once the crisis passes.

Jumbo Interactive Ltd (ASX: JIN)

The Jumbo share price has lost 56% of its value since peaking at $27.92 in October. The catalyst for this disappointing pullback was a surprise slowdown in the online lottery ticket seller’s earnings growth in FY 2020. After years of explosive growth, this year’s earnings are only expected grow at a reasonably modest rate due to a step change in expenses to support the increase in scale of the business and planned future growth.

However, I believe investors should look beyond this and focus on the future. These investments are expected to play a key role in the company achieving its “billion-dollar vision.” This will see the company grow its business to the point that it is processing $1 billion of tickets on the Jumbo software platform by 2022. This will be a significant lift on FY 2020’s expected ticket sales and should drive strong earnings growth over the coming years.

More reading

• 2 ASX growth stocks that could become 10-baggers in the next decade
• 3 outstanding ASX growth shares to invest $3,000 into today
• 2 ASX shares to buy with $5000 today
• Why didn’t Warren Buffett buy more shares in the recent bear market?
• 5 ASX 200 10-bagger shares of the decade

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Jumbo Interactive Limited. The Motley Fool Australia has recommended Jumbo Interactive Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post These beaten down ASX shares could be bargain buys appeared first on Motley Fool Australia.

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The Spirit Telecom Ltd (ASX: ST1) share price is storming higher today on the back of a new NBN service launch. After being up by as much as 10% throughout the day, Spirit Telecom shares are currently changing hands at 21 cents per share at the time of writing – up 5%.

About Spirit Telecom

Spirit Telecom considers itself a disruptor in the IT&T (information technology and telecommunication) industry. The company has developed its own advanced fixed wireless network, through which it provides Australians with ‘Sky-Speed Internet’. This super-fast internet ranges from 25 megabits per second (Mbps) to 500Mbps for homes and 25Mbps to 1 gigabit per second for businesses.

Along with providing internet access, Spirit Telecom offers a full range of managed IT services and cloud-based business solutions. It also offers internet products from Opticomm, NBN, DGTek, FG Telecom, Vocus Group Ltd (ASX: VOC), and TPG Telecom Ltd (ASX: TPM).

What’s behind Spirit Telecom’s share price rise?

This morning, Spirit announced the launch of its NBN Enterprise Ethernet (NBN EE) range to resellers and direct customers via its sales platforms.

NBN EE is an enterprise-grade fibre service which, according to Spirit, offers superior performance to that of legacy internet products. Through the company’s Spirit X platform, Australia’s largest digital aggregator of business internet products, NBN EE can reach in the vicinity of 2 million businesses.

This new offering expands the market opportunity for Spirit X across Australia. The platform could previously service around 100,000 addresses with fibre internet products. Now it will be able to provide symmetrical data connections across a national footprint.

As a result, the company expects further organic growth for Spirit X as cross-selling opportunities emerge. Additionally, it has plans to move the platform from a data platform to a marketplace in FY21, offering cloud services, IT support and security. This shift will be another potential driver of growth. 

Commenting on the new service launch, managing director Sol Lukatsky said:

“The launch of the NBN Enterprise Ethernet product moves Spirit into a new phase of growth. Additionally, the Spirit X product range is being promoted via our first national marketing campaign. Spirit X has already generated over 6200 service qualifications and leads in a few months. With the ability to service a much larger number of businesses, Spirit can drive greater awareness of the platform and continue to fill the demand for bundled, high-speed internet links and IT services in one offering.”

More reading

• These beaten down ASX shares could be bargain buys
• After hitting $50, the Afterpay share price has pulled back. Is it good value?
• 2 outstanding ASX 50 shares to buy today
• Pro-Pac Packaging share price jumps 14% on COVID-19 trading update
• Should you ever buy into an ASX IPO?

Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has recommended SPIRIT TC FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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After hitting an all-time high of $50 per share yesterday, the Afterpay Ltd (ASX: APT) share price is pulling back today. At the time of writing, Afterpay shares are down 6.39% to $45.97 after rising more than 11% since the start of the week.

So with this pullback, are Afterpay shares good value today?

Why Afterpay shares have been hitting the roof

Afterpay has been benefiting from a remarkable swing in investor sentiment. It was only a little over 2 months ago that the buy-now-pay-later pioneer was trading at under $9 per share. When the S&P/ASX 200 Index (ASX: XJO) crashed in March, investors flooded out of Afterpay, fearing the company’s credit risk would cripple it during a recession.

What a difference 2 months make.

Since the March lows, Afterpay shares surged by more than 500% to reach yesterday’s high. Even following today’s pullback, any investor who bought at the March lows would still be up more than 470%.

A number of factors have restored investors’ confidence in Afterpay. Paramount was the revelation that Chinese tech giant Tencent Holdings had acquired a 5% stake in the company over March and April – an investment that has no doubt already paid off handsomely.

Afterpay has also revealed that use of its platform has been soaring in recent months, especially in the United States.

Are Afterpay shares good value today?

Now that Afterpay shares have come off the boil, many investors (especially those with FOMO) might be wondering if today is a good ‘buy-the-dip’ opportunity.

Unfortunately, I don’t believe it is.

Since Afterpay has yet to turn a profit, this it makes it very difficult to value the company. It doesn’t even have a price-to-earnings (P/E) ratio yet (although Yahoo Finance estimates their forward P/E at an eye-watering 769.23).

If we look at the far flakier price-to-sales ratio, we see Afterpay shares are trading on 38x sales. Its price-to-book ratio isn’t more encouraging, coming in at more than 15.

So Afterpay is being priced for massive growth, that much is obvious. But is this justified?

Well, the company is growing very rapidly. After launching in the US only 2 years ago, Afterpay now has more than 5 million active users, and 9 million in total. The company told investors last month that more than 1 million new customers have joined since the start of the coronavirus outbreak.

Foolish takeaway

Despite some great pieces of news released by Afterpay, this does not get me on board with its current share price. Afterpay has always been a highly volatile share, so I’ll be waiting for a further pullback before considering an investment.

I may well be on the wrong side of history though!

More reading

• The ASX 200 stock hit by the Brazilian COVID-19 wave
• ASX 200 up 0.1%: Big four banks rocket, Afterpay sinks lower
• Why the NAB share price is surging higher today
• Why Afterpay, CSL, Fortescue, & Newcrest shares are dropping lower
• Where I would put $10,000 into ASX 200 shares today

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 50 index is a large cap index which has been designed to represent 50 of the largest and most liquid shares listed on the ASX by float-adjusted market capitalisation.

While I wouldn’t necessarily be a buyer of all the shares on the ASX 50, I think there are some top options for investors to consider at present.

Two that I would buy today are listed below:

CSL Limited (ASX: CSL)

The first ASX 50 share to consider buying is biotherapeutics giant CSL. I think it is one of the highest quality companies on the Australian share market and a great long term investment option. The company is made up of two businesses – CSL Behring and Seqirus. CSL Behring is behind immunoglobulins products such as Privgen and Hizentra, as well as haemophilia products Idelvion and Afstyla, amongst others. Whereas the Seqirus business is the second-largest player in the influenza vaccines industry.

The company’s current product portfolio has significant growth potential as it is, but management isn’t resting on its laurels. It continues to invest heavily in its research and development pipeline. As a result, CSL has a large number of potentially lucrative therapies and vaccines at various stages of development. I expect these to bolster its growth over the next decade and lead to more market-beating returns for investors.

Sydney Airport Holdings Pty Ltd (ASX: SYD)

Another ASX 50 share to consider buying is Sydney Airport. I think it is fair to say that the pandemic has hit the airport operator harder than most companies. The good news is that its balance sheet strength has helped it navigate the crisis far better than others. And with travel markets expected to start their recovery in the coming months, its outlook is becoming increasingly positive. As such, now could be an opportune time to make a patient investment in this ASX 50 share.

Furthermore, while I wouldn’t expect to receive a dividend in the second half of 2020, if Australia avoids a second coronavirus wave, I believe it will be well-placed to pay a decent dividend next year. And the following year I expect international tourism to be in full swing and its terminals to be heaving again. This should mean a dividend similar to previous levels, which implies a very generous yield well in excess of 6%.

More reading

• Why Afterpay, CSL, Fortescue, & Newcrest shares are dropping lower
• Where to invest $5,000 in ASX 200 shares today
• 3 ASX dividend shares to diversify your income
• ASX 200 rallies hard, no longer in bear territory
• Latest spending data could drive the ASX retail sector higher

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 2 outstanding ASX 50 shares to buy today appeared first on Motley Fool Australia.

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The Pro-Pac Packaging Ltd (ASX: PPG) share price is charging higher today on the back of a trading update and manufacturing site consolidation plans. At the time of writing, Pro-Pac Packaging shares are sitting 8.57% higher for the day at 19 cents per share after being up by as much as 14.29% in early trade.

About Pro-Pac Packaging

Pro-Pac is an international packaging company that operates a distribution and manufacturing network throughout Australia, New Zealand, and Canada.

The company supplies a combination of product and service solutions for primary, secondary, and tertiary packaging for most industry segments. Its vast product range includes flexible films, plastic bottles, gloves, cleaning supplies, and signs.

Pro-Pac was established in 1987 and has been listed on the ASX since 2005.

Why is the Pro-Pac Packaging share price spiking?

This morning, Pro-Pac provided an update on its expected results for the year ending 30 June 2020.

According to the ASX release, trading has been better than expected in the COVID-19 environment. Accordingly, the company expects full-year earnings before interest, tax, depreciation and amortisation (EBITDA) of around $30 million, before significant items. For context, Pro-Pac achieved a $28.1 million EBITDA result in FY19, and a $16.3 million result in the financial year before that.

Additionally, Pro-Pac has continued to target working capital improvements. As a result, it expects its net debt position at 30 June 2020 to be around $60 million. This is down from $82.9 million at 30 June 2019.

Optimisation of manufacturing footprint

In addition to the trading update, Pro-Pac also announced that it will relocate production from its Chester Hill facility in Sydney.

The transition, which is expected to be completed by March 2021, includes the transfer of manufacturing volume from the Chester Hill factory to the company’s other facilities in Sydney, Melbourne, Adelaide and Perth. This is to optimise Pro-Pac’s manufacturing footprint and expand its service offering in an effort to reduce its cost base and grow profitability.

According to the company, central to this initiative is the investment in a new 7-layer extruder and laminator. This piece of equipment will provide new capacity and capability for growth with existing customers, and also support expansion into new markets.

The closure of the Chester Hill facility will involve capital investment of around $7 million and one-off costs of approximately $12.6 million – incurred over the next 2 years. The project will be funded from cash reserves and existing committed banking facilities, and is expected to result in annualised benefits of around $7 million from FY22.

Commenting on today’s update, CEO Tim Welsh said:

Leveraging our existing resources and obtaining the best possible returns on our investments, is an important priority. The consolidation [of facilities] will ensure our Flexibles division remains a leader in the delivery of flexible packaging products and services, for all of the critical markets we serve. The move will also optimise our other sites and enable the business to focus on innovation and growth.

More reading

• Should you ever buy into an ASX IPO?
• Soaring share price: Is CBA a buy?
• The Aussie dollar just hit an 8-week high. Here’s how it affects your ASX shares
• Top brokers name 3 ASX shares to buy right now
• The ASX 200 stock hit by the Brazilian COVID-19 wave

Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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An IPO (or Initial Public Offering) can be an exciting event on the ASX, or any other share market for that matter. That’s because it involves the process of a private company becoming public, with its shares trading on the stock exchange for the first time.

Normally, most investors are locked out of investing in private companies because the shares aren’t publicly traded on a market.

But an IPO ‘democratises’ a company by allowing it to be accessible for the first time to any investor with money to spare. Thus, it’s always an exciting event with a lot of ‘buzz’ when a company goes public for the first time.

All listed companies underwent some kind of IPO in their history. This is the case whether relating to recent listings like Splitit Ltd (ASX: SPT) or those that occurred over a century ago, like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

Some big names that have IPOed on the ASX in the last 5 years include Splitit, as well as Viva Energy Group Ltd (ASX: VEA), Marley Spoon AG (ASX: MMM) and Elixinol Global Ltd (ASX: EXL).

Over in the United States, there are some bigger names you might have heard of that recently had IPOs. These include Uber Technologies Inc (NASDAQ: UBER), which floated just last year, along with Beyond Meat Inc (NASDAQ: BYND). These were very exciting events that generated a lot of investor interest.

Should you invest in IPOs?

Just because you can invest in something, it doesn’t necessarily mean you should. Investors often get swept up in the hype of an IPO. But here’s why I think investing in one usually isn’t a good idea for the average investor.

When a company is private, it is subject to far less scrutiny than a public company. Even after a private company becomes public, it can sometimes take years for all of the company’s skeletons to come out of the closet.

What’s more, you don’t get a chance to see how a company is actually weighed up by the market until after the IPO occurs. This can result in the shares being quickly re-valued.

Thus, a company can believe its own shares are worth $10 each and, as such, offers them at its IPO for $10. But if the market has a different opinion, you might find the shares trading at $7 or $5 each very quickly.

Boom, you’ve just lost 30% or more of your money on day one.

Foolish takeaway

In my experience, losing money on an IPO happens more often than not. Therefore, I generally think it’s preferable to wait until after a company has floated to buy in. That way, you can ensure you are buying its shares at the market price, rather than at a price the company has concocted. Too often, IPOs are done to let old investors out, not to let new investors in. Thus, I think all investors should be very careful with IPOs and be sure to have a cold shower before jumping in.

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Sebastian Bowen owns shares of Uber Technologies and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Uber Technologies. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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