After a somewhat shorter-than-expected hiatus from the regular stream of low-float IPOs that had been debuting since mid-July, the regulators (namely NASDAQ), opened the door for a test-run under deep scrutiny. The results were just short of disastrous, and make the case for at least some element of shenanigans on the part of underwriters to help deliver some level of demand that outstrips supply in these setups.
And in another more obscure corner of the world of IPO debuts, we saw a Regulation A filing that showed us what kind of craziness can ensue when a company forgoes the traditional underwritten process of going public, with an IPO that could potentially lay the blueprint for Stealth IPOs to follow now that NASDAQ has seemingly cracked down on all Chinese (and foreign, for that matter), IPOs.
So now we’ve seen that the indiscriminate hype surrounding the debut of all comers to the low-float IPO scene has essentially disappeared, and the great likelihood that high levels of scrutiny will sequester high flying Chinese IPO, there are a number of short terms imprecations this has on trading strategies both for allocation requests and debut trades. I’ll go into this more deeply in this week’s weekly preview newsletter, but suffice to say, we’ve reached a point in this cycle of IPO hype/hysteria where we need to reconsider the “gimme-all-I-can-get” allocation request.
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Ok, Let’s take a look at what happened last week in IPO Land:
Atlis Motors (AMV) – September 27, 2022 | 1.85M Shares
IPO Price: 27.50
Debut Price: $30.11
Day 1 High: $300.00
Day 1 Low: $30.11
High Since Debut: $300.00
Low Since Debut: $19.81
Day 1 Action: As a Regulation A filing, this one slipped under the radars of most IPO tracking calendars, but the IPO Warriors community was on top of sussing this one out on the morning of the IPO, and was fully aware of the circumstances surrounding this comically disorganized debt. A quick explanation on what a Reg A filing is might be in order, as we haven’t seen one of these since Knightscape (KSCP) debuted on January 27, 2022, but one consistent factor to these has been high volatility following their debuts. A Reg A filing is an IPO where companies bypass the traditional process of employing an underwriter to sell IPO shares into the market to facilitate the initial public offering, instead, the company directly markets their offering to the public.
In the case of AMV, apparently Reg A investors were unable to access their shares on the day of the IPO, so there were no shares available to trade. According to Twitter accounts who claimed to have purchased IPO shares, AST Financial required shareholders to verify their tax ID numbers before transferring allocations to traders’ accounts.
Anyway, the result was a long delay in opening the stock for trading, and unfortunately, by the time they came up with any shares to float, I had gone out for the day. However, the IPO Warriors Premium community was covering this trade in real-time, and at least a few members were able to procure shares on the debut and early halts (though reports were that even some open limit orders failed to fill at buy orders above market price).
The price action was as expected, a debut at $30.11 and insta-halts for the remainder of the day, with the real action coming in after-hours, as the stock was finally released from volatility halts, with an open at $82.12 that then embarked on a massive upside run that culminated at $300.00 before pulling back to the $200 range.
Day 2 Action: The insanity continued in Day 2 pre-market with an opening rally that touched the $300.00 mark before pulling back down to the $150s, and then rallying again back up to $300.00 twice before market open.
Once regular halts came back into play, the share price went into an elevator drop from an opening price of $247.17 to a bottom of $54.11, with several insta-halts down in the process. The stock would hit a bottom of $45.00 at around 1:20 PM EST, but would then rally back up to touch $105.00 in the early minutes of after-hours trading. But that appeared to have marked the end for any upside move.
Looking Ahead:
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Laser Photonics (LASE) – September 30, 2022 | 3M Shares
IPO Price: $5.00
Debut Price: $5.00
Day 1 High: $5.50
Day 1 Low: $2.50
High Since Debut: $5.50
Low Since Debut: $2.50
Day 1 Action: The LASE debut officially marked the end of the recent string of hype and hysteria that had ensured that nearly every low-float IPO that came to market was free money for allocation recipients. Before this one, the only failed IPOs were three deals with warrants involved, and of those, two of them had been scheduled on a crowded day in which two other IPOs out-shined them.
LASE came to market under intense scrutiny, in frigid market conditions, but otherwise had structured a deal that was designed with all the ingredients that we would have expected to deliver some kind of upside pop in normal market conditions. But at the end of the day, there simply wasn’t enough demand to outstrip supply for an upside move. Had the underwriter not stepped in to rescue the debut price with heavy use of the “shoe”, this one could have spelled disaster for all IPO allocation recipients.
In the IPO Warriors Live stream and Premium Discord channel, we managed to suss out the weakness of the debut in the early pre-debut indication period, where early price indications showed a heavy sell-side imbalance on price points in the mid $2 range: an absolute disaster of a debut in the making. Fortunately for most of us, as many traders had put in for large allocations that were ‘generously’ filled, the debut indication jumped in the final minute before the debut up to a break-even price of $5.00, allowing us to set limit orders that vacated our positions at or above our cost basis for a non-loss, or in some cases, a slight win.
Those who failed to recognize the ‘broken’ setup, saw their shares top out at $5.50 (1 cent below an upward halt), before dropping downward into a halt at $4.50, from where it then opened for trading down at $4.00, heading as low as $3.56 before making a climb back up to VWAP at $4.38 before failing to rally again for the remainder of the day, slowly bleeding out to hit a low of $2.56 minutes before the bell. No meaningful after hours rally would materialize.
What is “the shoe”?
This term is perhaps unfamiliar to many newer IPO traders, and is worth understanding: essentially, underwriters typically have an option to purchase up to 15% of additional shares of the stock prior to the closing of the IPO, which it generally within a few days of the stock commencing trading on the selected exchange. So in this case, Alexander Capital had an option to purchase up to 450,000 additional shares at the IPO price. It appears that they chose to purchase roughly 200k shares in the moments right before the IPO debuted, to rescue the share price and give investors an opportunity to get out of their positions without incurring a significant initial loss.
The simple reason for doing this, is that it will keep the underwriter’s clients happy, liquid, and willing to purchase shares in future offerings presented to them by these underwriters.
Day 2 Action: We’ll see if we get a Day 2 rebound rally on Monday.
Looking Ahead:
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Looking forward to future IPOs next week:
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