Well, that was a bit of a rough week for the market, and like many of you, I’m sure you felt a bit tentative in diving into any fresh positions, let along IPO trades. Still there were win opportunities for the bold trader who chose wisely and took profits early. We’ll review those in a minute.
Before we get started, just a reminder that I’ll be appearing on the Benzinga YouTube Channel live on Monday, October 4, 2021 – but this time I’ll be on at NOON EST (instead of 9:00 AM EST). The link is here:
Alright, let’s take a look at last week’s IPO debuts:
Amplitude (AMPL) – This direct listing turned out to the be best performing debut of the week, and goes to show that a reasonable float (35M shares) with a strong company can perform well regardless of whether it’s a direct listing or traditional IPO, even in rough market conditions. This one debuted at $50.00 and rode an upward trajectory to a peak of $54.50 out the gate, and then proceeded to spike to a high of $56.90 in the closing minute of trading. While the final spike would have been difficult to hit at the maximum peak, a wise play would have been to take profits on half your position with a trailing stop loss to exit around $53-54, and set a limit order to sell the rest at $54.95 or $55.95: either would have been triggered in the closing minute for a nice win.
Warby Parker (WRBY) – The other direct listing of the week, showed why a high float doesn’t sustain any kind of run. At 77.7M shares, anyone who decided to try their hand on the WRBY debut was left with virtually no upside opportunities with quite a bit of heat for the remainder of the week, though to be fair, the downside has been minimal as well and the stock settled into the week’s close within striking distance of it’s debut. WRBY opened at $54.11, and bounced around from about $53 to $54.72 for the first 15 minutes of trading… really, it didn’t break out of this range for the remainder of the day. Day 2 it fell off a bit, and Day 3 recovered. The market was crashing a bit last week when WRBY debuted, so perhaps it runs with a recovery, but for me, 77M shares is just too much float to do anything with it, and as expected, the high demand was overpowered by the even higher supply.
Allvue Systems Holdings (ALVU) – Got pulled, didn’t want to take it’s chances in a cold market, or more likely, investment bankers weren’t interested in taking a chance on this one in a crashing market.
Olaplex (OLPX) – Despite attempts by some trading groups to pump this on social media, and strong financials, OLPX was ultimately undone by it’s enormous float which had been increased from the original offering of 67M shares to a hefty 73M shares. I was sort of thinking of playing this one before, but once they added almost 10% more shares to an already giant float, I was just gonna watch from the sidelines: and for those brave souls who did attempt to play this off the debut, it showed why profits are to be had quickly or not at all when playing a high-volume debut. OLPX opened at $25, yo-yo’d between $24 and $26+ three times, and then fell out to a bottom of $23.25 before mounting an end of day run back to just under $25 to close out Day 1. Day 2 failed to produce any kind of overnight media pump, and the stock dropped further throughout Day 2 to close the week at just $22.90. OLPX may be a strong company, with lots of retail investment interest, but when you show up with 70+M shares you’re bringing more food than there are mouths to feed.
Excientia (EXAI) – Appeared late on the calendar, but produced a strong debut, as lowish float IPOs often do: it opening at $27.15 and quickly running up to it’s high of the day at $30.38. A pretty straightforward play for those who hopped onboard at the debut: either a trailing stop loss or a limit order set to take profits at the +$2 mark (say, $28.95) or undercutting the $30 resistance level (I’d probably put my limit order at $29.85 to be safe)… I played this one a little too tightly, setting a stop loss just about my entry once it moved up off the open, only to get stopped out for a non-loss before it made it’s initial run. Oh well, didn’t want to get stuck in any bag holding positions, so for me, I was either in for an immediate run up, or out with no loss if it took a while before it moved up. Wasn’t anything particularly exciting anyway, but those $1-2 wins can add up if you can pick them off without incurring losses..
First Watch Restaurant Group (FWRG) – This wasn’t all that interesting to me, and would have been a difficult play, but if you were bullish on it for some reason (perhaps the low float of 9.4M shares appealed to you), you were given opportunities to take profits. FWRG debuted at $21.00 and after spending the first 10 minutes looking like it wanted to drop, trading below VWAP and touching as low as $20.40 before reversing into a strong run up to a peak at $22.98 (this is why I set limit order targets at least $0.05 below a whole number). From there the stock bounced between $21.50 and $23.00 for the remainder of the day, spiking to a daily high of $23.43 in the final minute. Again, maybe you picked this one and pulled of a $1-2 win: if you did, nice job, if you missed it, you’re not likely going to lose any sleep over it.
TDCX Inc (TDCX) – Did not do well. Sort of in that no-man’s land of mid-sized float, nothing sexy in the financial, no brand name recognition, and wasn’t added to the IPO calendar until after the start of the week. Debuted at $20.83, briefly ran up to $22 in the first minute, but so briefly that it would have been nearly impossible to place an exit trade, or even a stop loss in time. Then it proceeded to drop off to a baseline at $20.00, but that proved to be just a first-level drop: as it fell off that shelf to a second baseline at $19, while it did briefly break down through that barrier to as low as $18.53, it ultimately found support at $18.90 before an end of day spike to $20.00 in the final minutes.
Suspicious Direct Offering: TDH Holdings (PETZ)… is this an Incognito Stealth IPO?
If you’ve been following this newsletter for a while, you’re familiar with the concept of a Stealth IPO: basically, an under-the-radar, low float IPO that rips off an insane rally on the debut for no apparent reason: typically unknown Chinese companies presumably for the purpose of transferring money out of Chinese bank accounts into Western markets (aka. ‘money laundering’).
Well, since the shutdown of Chinese IPOs since the DIDI debacle, the absence of the Stealth IPOs financial device has left the clients of underwriters who had frequently used this approach with no means of expatriating their money out of China… but it looks like they’re starting to get creative: a few weeks ago we saw FCUV go on a 500% tear in the day following its uplisting to the NASDAQ. Since then, I’ve been looking out for any kind of share issuance from one of the well known Stealth IPO underwriters, such as Boustead Securities, Sutter Financial, or Network 1 Financial.
So I got pretty excited when I read that Boustead was involved with a Direct Offering of 10M shares (plus 20M warrants) for a company that in 2017 was one of the early Stealth IPOs, and who had rallied for an unexplained 600% spike on February 16/17, 2021… after a bit of digging, I learned that insiders control roughly 77% of the free float prior to the direct offering, and we can only assume that the shares and warrants from the offering went to close friends and partners (as they were not listed publicly). The warrants are good for 24 months, and can be redeemed at $2.06 – the stock traded above that mark in mid-September, and has generally traded in a range of $1.50 to $3.00 for the past year. So why would this company issue essentially 30M shares for a cost basis of just $0.30 unless they were up to some shenanigans?
Well, they probably wouldn’t, so I think they’re up to some shenanigans, and I want to be in there with them when and if this goes ballistic. I’ve already taken a position around $1.35, and will add some more if we get a dip below $1.20 before they start the fireworks show. I’m not sure when it will happen, and can never presume that any speculative play with pan out, but I sense a very strong possibility that Boustead and company pump this stock up on a massive run in the near future. At least keep an eye on it.
Reminder: I’ll be appearing on Benzinga Live on Monday, October 4, 2021 at 12:00 PM NOON EST to discuss last week’s IPO trades and review next week’s upcoming debuts.
Hope to see you there.
Note: This is not financial advice, I am not a financial advisor, and all the content in this newsletter is for information only. I may hold positions, or take positions, in the equities mentioned in this newsletter. Trading stocks is risky, you might lose money, do your own research and trade your own trades. Good luck out there.