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A financial technology company is listing Wednesday on the ASX with a market capitalisation of $280.3 million.

Plenti Group Limited (ASX: PLT), formerly known as RateSetter, is set to become the latest tech player to intrigue investors looking for early growth.

The company takes money from various sources – including retail investors – and lends it out to customers as personal, car or renewable energy loans.

Plenti will start trading on Wednesday with an initial price of $1.66 per share. The company originally sought to raise $50 million via the initial public offering (IPO), but revised that to $55 million due to demand.

Chief executive Daniel Foggo told The Motley Fool he always had an IPO in mind when he co-founded the business back in 2014.

“We’ve always seen this as a natural destiny,” he said.

“We’ve always had consumers funding our loans… So it’s quite a natural evolution to give them an opportunity to invest in the company.”

That evolution was indeed fulfilled, with 20,000 retail loan ‘funders’ also becoming shareholders during the initial public offering.

“Often one of the first questions [retail lenders] have asked us over the years is ‘When can we actually invest in the equity of the company?’”

What’s Plenti’s moat?

Borrowing and lending has been around for as long as humans, so The Motley Fool asked Foggo what makes Plenti different.

“The technology aspect of our business provides us with a real competitive advantage,” he said.

“It’s one of the key reasons why our revenue [annual growth rate] over the last 2 years is 60%.”

Plenti owns and maintains all the technology end-to-end, according to Foggo, unlike some other startups that utilise licensed components or platforms.

“It provides operational leverage so at scale we have really attractive economics.

“Around a quarter of our staff are working on growth projects and technology or product roles. That’s quite a different ratio to a lot of other businesses.”

Plenti started off as a peer-to-peer lender, meaning loans were entirely funded by other retail customers. But as the company grew, institutions like banks and fixed income funds joined in.

“I think we’re the only fintech in Australia to have a superannuation fund funding credit.”

Plenti’s diversified loan funding sources give it “resilience”, Foggo said.

“It’s certainly times like these when you can see some sources of capital dry up. In the [global] financial crisis, we saw wholesale funding markets dry up.”

Foggo does have the runs on the board running private companies. In 2016 and 2017, he won fintech industry awards for his leadership at what was then known as RateSetter. 

He co-founded buy now, pay later provider PartPay, which was sold to Zip Co Ltd (ASX: Z1P) last year.

Consumer borrowing during COVID-19

Foggo told The Motley Fool that demand for personal loans certainly dipped when the COVID-19 pandemic arrived.

But car and renewable energy loans have “performed exceptionally well”.

“In our renewables business, we had a number of record lending months during the COVID period,” he said.

“A lot of people were at home and they were investing in home improvements… and investing in solar panels.”

Car loans initially dipped in April when all of Australia was in lockdown, but picked up afterwards as people sought to avoid public transport.

“We really invested 3 or 4 years making sure we’re in the right position to grow in the automotive market. One of our shareholders, for example, is Carsales.Com Ltd (ASX: CAR).”

Plenti earned $41.5 million in revenue for the year ending March, which was up 43.8% from the prior year. It forecasts $48.6 million for the 12 months to September. 

The company made a $16.5 million net loss for the year ending March.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• What you need to know about Tyro’s share price roller coaster today
• Is the Zip (ASX:Z1P) share price headed higher or lower? 
• Why the Splitit (ASX:SPT) share price is on the move today
• Why City Chic, Fortescue, Nearmap, & Zip shares are dropping lower today

Tony Yoo 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 has recommended carsales.com 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 Harvey Norman Holdings Limited (ASX: HVN) share price jumped 2.1% on Monday after a strong sales update. The good times are rolling for the Aussie retailer right now but will they continue in 2021?

Why the Harvey Norman share price jumped higher

A strong trading update was the main catalyst for the solid capital gains in yesterday’s trade.

Harvey Norman reported sales from 1 July 2020 to 17 September up 30.3% from the previous year. That’s an incredibly positive start to the new financial year buoyed by strong government stimulus and online sales channels.

The Harvey Norman share price surged higher as unaudited preliminary accounts showed a 185.8% increase in profit before tax to $178.1 million.

Can the momentum continue in 2021?

Clearly, this strong sales growth won’t continue forever. That doesn’t mean that the Harvey Norman share price can’t climb higher on the back of short to medium-term growth outperformance.

Retailers have surprised many commentators in the market this year. The coronavirus pandemic has weighed on economic growth and sparked a recession.

That would normally see discretionary spending on retail, such as products sold by Harvey Norman, subside as consumers look to save more cash.

2020 is no normal year and we’ve seen an uptick in retail spending. There could be a number of factors driving the move including the early access to superannuation scheme and strong government stimulus like JobKeeper.

Whatever the cause, the Harvey Norman share price is riding the spending wave higher. Impressively, the ASX retail share could still be a cheap buy.

The group’s shares are currently yielding 4.1% despite trading just below a 52-week high. That’s good news for investors looking for a reliable dividend share in the S&P/ASX 200 Index (ASX: XJO).

On top of that, the Harvey Norman share price is trading at a price to earnings (P/E) ratio of 11.3x. That could mean its a good value buy compared to other ASX retail shares like Super Retail Group Ltd (ASX: SUL).

Super Retail shares trade at a P/E of 19.2x with JB Hi-Fi Limited (ASX: JBH) shares at 18.0x.

Foolish takeaway

The Harvey Norman share price has rocketed 9.1% higher in 2020 but could have further to run given its current valuation.

More reading

• Up 79% this year, is the NextDC (ASX:NXT) share price the next Afterpay (ASX:APT)?
• Macquarie says ASX value shares will outperform growth stocks from here
• ASX 200 drops another 0.8%, Magellan (ASX:MFG) reveals a large investment
• 2 reliable blue chip ASX 200 shares to buy today
• Latest ASX 200 stocks hit by broker downgrades today

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Super Retail Group 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 Jumbo Interactive Ltd (ASX: JIN) share price could come under pressure on Tuesday following the release of an after-hours announcement by Tabcorp Holdings Limited (ASX: TAH) on Monday.

What was announced?

After the market close on Monday, Tabcorp revealed that it will be selling its stake in Jumbo.

According to the release, the gambling company has entered into an agreement to sell its 11.6% interest through a block trade with UBS.

Tabcorp has agreed to sell 7,234,178 shares in Jumbo at a price of $13.52 per share. This represents a 6.1% discount to its last close price and will generate gross proceeds of approximately $98 million. The sale is expected to settle on 24 September 2020.

After which, Tabcorp intends to use the proceeds to pay down its existing drawn bank debt facilities.

Why is Tabcorp selling Jumbo shares?

The company’s Managing Director and CEO, David Attenborough, revealed that it was selling its stake due to its new long-term agreement with Jumbo. This meant that the strategic investment was no longer necessary.

Mr Attenborough explained: “Following the recent extension of our long-standing commercial distribution relationship with Jumbo for a ten year term to August 2030, there is no longer a strategic rationale for Tabcorp’s shareholding in Jumbo.”

‘As a result, we have decided to monetise this investment, with the resulting capital to be used to further strengthen the balance sheet and support the move towards our recently revised target gearing range,” he added.

Tabcorp will record a profit after tax on the sale of approximately $69 million. This is expected to be reported as a significant item in its first half results.

Should Jumbo shareholders be concerned?

Given that the two companies now have a ten-year agreement in place, I wouldn’t be overly concerned by this news.

While Tabcorp is responsible for the vast majority of Jumbo’s revenues at present, in ten years it should be a very different story.

This is due to management’s bold international expansion plans for its Powered by Jumbo software as a service (SaaS) business. It notes that the global lottery market is worth US$303 billion a year, but just 7% of this market is online at the moment.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• Grow rich with these excellent ASX shares
• The Tabcorp (ASX:TAH) share price is flat following ASX announcement
• Turn $6k into $60k, a guide to growth investing
• Why IGO, IPH, Jumbo, & Whitehaven shares are pushing higher today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and 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 Jumbo (ASX:JIN) share price on watch after Tabcorp (ASX:TAH) sells its stake appeared first on Motley Fool Australia.

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The Nextdc Ltd (ASX: NXT) share price has been one of the top performers in the S&P/ASX 200 Index (ASX: XJO) this year.

The ASX tech share has rocketed 78.6% higher this year to outpace many of its tech rivals. Impressively, it has also maintained its value despite a broader tech sell-off.

So, is the NextDC share price really good value right now and will it be the next Afterpay Ltd (ASX: APT)?

Why the NextDC share price has further to run

I think the current market presents plenty of buying opportunities and the NextDC share price could be one of them. Generally, markets are pretty good at pricing in expected future growth or earnings.

However, the coronavirus pandemic has thrown a real spanner in the works. I think that uncertainty could mean a bet on future economic growth in particular industries can pay dividends for investors.

Afterpay’s success has been built on explosive growth and an ability to capture significant market share. I see some similarities with NextDC’s strong data centre growth and strong market position.

In terms of industry conditions, I think things are looking up for the NextDC share price. A shift towards remote working and a push into regional Australia could boost demand for data storage and security services.

In my view, NextDC is in the box seat to capitalise with extensive data centre capabilities across Australia. 

The Afterpay share price growth in recent years has been astronomical. Some may argue it’s unwarranted for a company that is yet to turn a profit. However, I think a strong growth outlook is something that investors are looking for in the current market.

If it’s growth you’re after, I think the NextDC share price is worth a look. The group hit the top end of its guidance range in its FY20 results with a 14% increase in revenue to $205.2 million.

NextDC also grew its contracted utilisation by 33% to 70 megawatts with customer numbers surging 15% to 1,364 in FY20.

Strong capital expenditure says to me that management is pushing for further growth. That could be good news as NextDC continues to carve out a significant market niche for itself.

Foolish takeaway

It’s hard to say if the NextDC share price will be the next Afterpay. Despite surging in 2020, there is plenty of work left to do before it is considered in the same vein of ASX growth shares.

However, the technical environment looks good and NextDC is backing it up with strong numbers. That to me says that the NextDC share price should be on any tech investor’s watchlist for 2021.

More reading

• Can the Harvey Norman (ASX:HVN) share price maintain its momentum?
• Macquarie says ASX value shares will outperform growth stocks from here
• ASX 200 drops another 0.8%, Magellan (ASX:MFG) reveals a large investment
• 2 reliable blue chip ASX 200 shares to buy today
• Latest ASX 200 stocks hit by broker downgrades today

Motley Fool contributor Ken Hall 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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I think there are a number of ASX shares that are unstoppable businesses that are worth buying with $4,000.

It’s the businesses that are growing rapidly which could continue to outperform over the longer-term as they continue to impress the market. Here are a few ideas:

Temple & Webster Group Ltd (ASX: TPW)

This ASX share is one of the e-commerce businesses that have done well during these COVID-19 lockdowns. The online retailer of furniture and homewares has performed very strongly.

In FY20 it reported that its annual revenue increased by 74% to $176.3 million. It generated positive cashflow over the full year and earnings before interest, tax, depreciation and amortisation (EBITDA) went up by 467% to $8.5 million.

It was a fantastic performance by the small cap ASX share. The FY20 fourth quarter revenue went up by 130%.

Will the growth continue in FY21? Well I’m not sure we’ll see the same amount of EBITDA growth in percentage terms. But the first half of FY21 could be strong after it reported that so far in this financial year to 27 August 2020 it saw year on year revenue growth of 161% and it generated EBITDA of $6 million over just two months.

Looking at the current Temple & Webster share price, it’s trading at 52x FY22’s estimated earnings.

Kogan.com Ltd (ASX: KGN)

Kogan.com is another e-commerce business that is doing well because of the disrupted retail environment. COVID-19 is causing difficulty for shopping centres, but online retailers are doing well.

Gross sales in FY20 climbed 39.3% to $768.9 million and gross profit rose 39.6% to $126.5 million. This was pretty good after years of solid growth already in the bag. Adjusted EBITDA jumped 57.6% to $49.7 million and net profit after tax (NPAT) rose by 55.9% to $26.8 million.

The ASX share has been very impressive. Kogan hasn’t been destroyed by Amazon’s arrival to Australia. Indeed, it has flourished over the past year or two.

The growth is continuing into FY21. July 2020 saw gross sales rise by 110%, gross profit went up 160% and Kogan.com made over $10 million of adjusted EBITDA in just one month.

August 2020 was another strong month. Gross sales grew 117%, gross profit rose 165% and adjusted EBITDA soared 466%.

FY21 seems like it’s going to be a strong year, with an impressive FY21 half-year result on the way for the ASX share.

At the current Kogan.com share price it’s valued at 42x FY22’s estimated earnings.

Pushpay Holdings Ltd (ASX: PPH)

I think Pushpay is one of the most exciting, unstoppable ASX shares right now.

The company is very useful for its clients. It has thousands of US churches as customers. The churches like the technology as it provides a livestreaming option and it enables people to digitally donate which is a very useful service during this difficult COVID-19 period.

In FY20 the ASX share saw its total processing volume rise by 39% to US$5 billion, which drove total revenue higher by 32% to US$129.8 million. One of the most exciting things about Pushpay is that it’s aiming for US$1 billion of annual revenue over the long-term. That would make it a much more profitable business due to its software business model with relatively fixed costs.

Its gross profit margin increased by five percentage points from 60% to 65% during FY20. When it reaches US$500 million of revenue it could be a much bigger business. In FY21 alone it’s guiding that it can double its EBITDAF (the F stands for foreign currency).

At the current Pushpay share price it’s trading at 32x FY22’s estimated earnings.

Ophir High Conviction Fund (ASX: OPH)

This is a listed investment trust (LIT) operated by Ophir, one of the best investment teams in Australia in my opinion.

The LIT targets ASX shares with good growth potential and, normally, with an element of international growth.

It has been a strong performer for a long time. Over the past five years the fund has returned an average of 24.3% per annum, with net returns of 19.7% per annum.

At the end August 2020 it reported that its top five holdings (in alphabetical order) were: A2 Milk Company Ltd (ASX: A2M), Afterpay Ltd (ASX: APT), Mineral Resources Limited (ASX: MIN), Nextdc Ltd (ASX: NXT) and Xero Limited (ASX: XRO).

Despite the strong performance, the ASX share was trading at an attractive discount at the end of August 2020 with a net asset value (NAV) per unit of $3.11 and a unit price of $2.96. However, it may be trading at a slight premium today.

Foolish takeaway

I’d be happy to buy all of these unstoppable ASX shares for the long-term today. At the current prices I think Pushpay looks like the best bet, though I like the diversification that Ophir High Conviction Fund would offer with its growth portfolio.

More reading

• What you need to know about Tyro’s share price roller coaster today
• 5 stellar ASX growth shares that could smash the market in the 2020s
• Where I’d invest $20,000 into ASX shares right now
• Where to invest $10,000 into ASX shares immediately
• Why Mineral Resources, Redbubble, Saracen, & Temple & Webster shares are pushing higher

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd, PUSHPAY FPO NZX, Temple & Webster Group Ltd, and Xero. The Motley Fool Australia owns shares of A2 Milk and AFTERPAY T FPO. The Motley Fool Australia has recommended Kogan.com ltd, PUSHPAY FPO NZX, and Temple & Webster Group Ltd. 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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With the base interest rates on savings accounts from Commonwealth Bank of Australia (ASX: CBA) and other banks as low as 0.05%, it is almost impossible to generate a sufficient income from them.

But don’t worry, because there are a number of quality dividend shares on offer on the Australian share market to save the day. Two that I would buy are listed below:

Accent Group Ltd (ASX: AX1)

Accent is a footwear-focused retailer which owns retail store brands such as HYPE DC and Platypus. It has continued its positive form in 2020 despite the pandemic. This has been driven by the popularity of its brands, its strong market position, and growing online business.

The good news is that I believe there’s still a lot more to come from Accent over the coming years. This is due to its expansion plans, strong online offering, and its focus on active and casual wear. In light of this, I think it could be a great long term option for income investors. Especially given its generous yield. I’m expecting it to pay a 9 cents per share fully franked dividend in FY 2021. Based on the current Accent share price, this means investors will receive a 5.7% dividend yield.

Dicker Data Ltd (ASX: DDR)

Dicker Data is a leading wholesale distributor of computer hardware and software across the ANZ region. I think it could be a great option due to its strong market position, growing vendor agreements, positive tailwinds, and new distribution centre. Combined, I believe these have put Dicker Data in a position to continue its growth over the coming years.

This certainly was the case in the first half of FY 2020 when Dicker Data reported a 30.4% increase in half year profit before tax to $42 million. This means the company is on course to lift its dividend to 35.5 cents per share this year. Based on the current Dicker Data share price, this equates to a fully franked 4.4% dividend yield.

More reading

• Why Dicker Data, Harvey Norman, Rhipe, & Senex shares are pushing higher
• 3 ASX dividend shares for income investors to buy today
• Top ASX dividend shares to buy in September 2020
• 2 high quality ASX dividend shares with generous yields
• Smash low interest rates with these ASX dividend shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. The Motley Fool Australia has recommended Accent Group. 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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On Monday the S&P/ASX 200 Index (ASX: XJO) started the week with a disappointing decline. The benchmark index fell 0.7% to 5,822.6 points.

Will the market be able to bounce back from this on Tuesday? Here are five things to watch:

ASX 200 expected to tumble lower.

It looks set to be another difficult day of trade for the ASX 200 on Tuesday. According to the latest SPI futures, the benchmark index is poised to fall 54 points or 0.9% at the open. This follows a disappointing start to the week on Wall Street which saw the Dow Jones fall 1.8%, the S&P 500 drop 1.15%, and the Nasdaq index tumble 0.1%. This was driven by concerns over rising coronavirus cases.

Oil prices crash lower.

Energy producers such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could come under pressure today after oil prices crashed lower overnight. According to Bloomberg, the WTI crude oil price dropped 3.7% to US$39.59 a barrel and the Brent crude oil price sank 3.1% to US$41.80 a barrel. Concerns over oil demand because of the pandemic weighed on prices.

Gold price sinks lower.

The likes of Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) will be on watch this morning after the gold price sank lower. According to CNBC, the spot gold price has tumbled 2.25% to US$1,917.90 an ounce. The precious metal came under pressure after the U.S. dollar strengthened.

Dividends, dividends, dividends.

BHP Group Ltd (ASX: BHP) is one of a handful of companies paying dividends today. Eligible shareholders of the mining giant can look forward to being paid a fully franked 75.5 cents per share final dividend. IOOF Holdings Limited (ASX: IFL) and Sonic Healthcare Limited (ASX: SHL) are also paying their dividends. Elsewhere, Carsales.Com Ltd (ASX: CAR) shares go ex-dividend this morning and could trade lower.

Tabcorp sells Jumbo stake.

The Jumbo Interactive Ltd (ASX: JIN) share price will be on watch today after Tabcorp Holdings Limited (ASX: TAH) announced the sale of its stake in the online lottery ticket seller. Tabcorp has agreed to sell its 11.6% stake for a 6.1% discount of $13.52. This equates to gross proceeds of $98 million, which will be used to pay down debt.

More reading

• How to reinvest an ASX dividend payment
• 3 ASX shares moving higher today
• ASX 200 Weekly Wrap: ASX 200 snaps 4 week losing streak… just
• 5 things to watch on the ASX 200 on Monday
• Grow rich with these excellent ASX shares

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited. The Motley Fool Australia has recommended carsales.com Limited and Sonic Healthcare 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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It’s now or never for rotating your share portfolio towards ASX value stocks and away from high-flying tech darlings, according to a leading broker.

The analysts at Macquarie Group Ltd (ASX: MQG) have upped their exposure to underperforming value stocks in their model portfolio.

The move comes at the expense of better performing growth stocks, particularly those that have performed well recently as their businesses benefitted from the COVID-19 pandemic.

Value stocks vs. growth stocks

The view echoes my recent call for the baton to be passed from growth stocks to value stocks. Value stocks are those trading on low multiples as their share prices have lagged the S&P/ASX 200 Index (Index:^AXJO) because their earnings have been hit by the COVID fallout.

But early indicators put equities at the “expansion” phase – the period following a US recession. Macquarie pointed out that ASX value shares always outperform in the first expansion year after a recession.

This isn’t the only reason to buy value stocks.

Other reasons why value stocks can outperform

Those stocks sold off as they are at the wrong end of the pandemic will likely come roaring back when/if a vaccine is found.

Many of these value stocks are also exposed to economic cycles. As a treatment becomes available, economic activity will rebound strongly to the benefit of sthese laggards.

The broker also holds a bias towards domestic industrials (many of which are in the value camp) compared to offshore earners. This is because Macquarie is forecasting a stronger Australian dollar due to rising commodity prices.

“Our preferred cyclical indicator signals we have experienced the fastest Downturn and Recovery, with China now leading a shift to Expansion,” said Macquarie.

“Stocks tend to rise in Expansions, with cyclicals and value outperforming.”

Best ASX value stocks to buy

These are the reasons why the broker added seven ASX stocks to its model portfolio. These include the Westpac Banking Corp (ASX: WBC) share price and Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price.

The remaining industrials are the BlueScope Steel Limited (ASX: BSL) share price, Seven Group Holdings Ltd (ASX: SVW) share price, Lendlease Group (ASX: LLC) share price, United Malt Group Ltd (ASX: UMG) share price and Ampol Ltd (ASX: ALD) share price.

The broker also increased its position in the Worley Ltd (ASX: WOR) share price, Crown Resorts Ltd (ASX: CWN) share price, GPT Group (ASX: GPT) share price and Sydney Airport Holdings Pty Ltd (ASX: SYD) share price.

On the flipside, some stocks that Macquarie dropped from the portfolio include the Wesfarmers Ltd (ASX: WES) share price and Amcor CDI (ASX: AMC) share price.

More reading

• ASX 200 drops another 0.8%, Magellan (ASX:MFG) reveals a large investment
• Is it time to buy Telstra and these high quality ASX 200 shares?
• 2 reliable blue chip ASX 200 shares to buy today
• Latest ASX 200 stocks hit by broker downgrades today
• Leading brokers name 3 ASX shares to buy today

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, BlueScope Steel Limited, Macquarie Group Limited, Seven Group Holdings Limited, Westpac Banking, and WorleyParsons Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Amcor Limited and Macquarie Group Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Crown Resorts 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 IPO (or initial public offering) has moved towards the centre of public opinion in the investing world in 2020 so far. Despite the coronavirus pandemic, there has been a flurry of high-profile IPOs this year on the ASX alone. We have seen Laybuy Holdings Ltd (ASX: LBY) a few weeks ago, as well as Access Innovation Holdings Ltd (ASX: AIM) just last week.

Over in the Unkited States, things are no different. Fresh from the blockbuster listings of ride-sharing giants Uber Technologies and Lyft last year, just last week we witnessed one of the most spectacular IPOs in history with Snowflake Inc. Snowflake shares were set alight when it hit the NYSE boards last week, with the shares quickly doubling (and nearly tripling) from the floating price of US$120 to a high of US$319.

US and ASX IPOs are exciting and always attract news and coverage when they go ahead. It’s the investing equivalent of a debutante ball, minus the gowns.

But they are almost always a bad idea, in my opinion. Especially for newer, inexperienced investors.

IPO or IP-NO?

Well, it’s to do with how an IPO works. See, a company that is about to list on an exchange already has shares. They’re just not publically available. They’re usually held by a mix of company insiders and founders, together with institutional investors that have funded the company’s expansion until that point. When the IPO process begins, those investors are the ones offering the shares at the IPO price. Normally, no (or very few) new shares are created on IPO day. Existing shareholders are just offloading the vast majority to the general public.

So you have a giant share sale, orchestrated by people who already own the shares and are usually looking to sell most or all of them. Guess what. That means that the IPO will almost always be designed to maximise value for those shareholders. And that’s at the expense of anyone looking to buy into the IPO. As such, almost no IPOs are done at ‘fair value’. Rather the IPO share price is selected for the maximum benefit for those investors looking to cash out.

This means that most IPOs are done to shortchange retail investors. It’s no coincidence that most companies who IPO tend to trade below the price at which they IPOed for a long time. We see this today with both Uber (which IPOed at US$40 and trades for US$37 today), and Lyft (which IPOed at nearly US$80 and now sells for just over US$30).

Foolish takeaway

I know IPOs can be exciting, but for the reasons I’ve outlined, I think most investors should stay away, at least until the dust settles. Judging by what’s happened with past IPOs like Uber, Lyft and Laybuy, you’ll probably get the chance to invest in these companies for a cheaper price down the road. So unless you’re super keen on a new company, I wouldn’t try and ‘play the IPO’. Chances are you’ll get played trying.

More reading

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• Access Innovation (ASX:AIM) share price rockets 23% higher on ASX debut
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• Why the Laybuy (ASX:LBY) share price is tanking today

Sebastian Bowen owns shares of Uber Technologies. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Snowflake Inc. and Uber Technologies. 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 Why ASX IPOs are almost always dangerous for new investors appeared first on Motley Fool Australia.

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The iCandy Interactive Ltd (ASX: ICI) share price closed at 5.4 cents today after soaring 14% in early morning trade. This comes after the company emerges from another trading halt following its second successful capital raising in only 4 days.

The small-cap video game developer’s share price has been rocketing higher since 10 September. It surged again last week after announcing a $1.25 million capital raising (before costs) of 62,500,000 new fully paid ordinary shares.

Investor interest has seen iCandy Interactive’s share price leap up 190% since 10 September.

Year-to-date the share price is up 83%. By comparison the All Ordinaries Index (ASX: XAO) is down 12%.

What does iCandy Interactive do?

iCandy Interactive develops and publishes mobile games and digital entertainment for audiences across the world. The company’s diverse portfolio of award winning mobile games is played by more than 350 million people. It aims to bring together the best game producers across the Asia Pacific region to, you guessed it, make great games.

iCandy shares first began trading on the ASX in February 2016. The company has a market cap of $25 million.

What’s with a second capital raising?

Less than a week ago, on 15 September, iCandy announced it had raised $1.25 million at 2 cents per share. The placement was heavily over-subscribed, with more than $5 million bid for shares from a variety of funds, sophisticated investors and existing shareholders.

With that level of investor interest, the company launched a second capital raising, with the results announced today.

The company said it had completed the additional capital raising of $1.2 million at 4.5 cents per share. That’s 125% higher than the 2 cents per share of its capital raising last week.

Shares were placed to Acorn Managed Investments, led by Joseph Sedmak.

Sedmak is focused on digital marketing strategies and initiatives. The company will work with him to boost its digital marketing capabilities, particularly in North America, the largest market for its games. iCandy said it would also use the new funds to accelerate the roll-out of its new games.

With e-sports one of the few ‘sports’ that’s managed to escape a major blow from the coronavirus pandemic, the iCandy share price is one to watch.

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• The Mayne Pharma (ASX:MYX) share price leaps almost 8% higher
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Motley Fool contributor Bernd Struben 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.

The post Why the iCandy (ASX: ICI) share price is on a wild ride appeared first on Motley Fool Australia.

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