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IPO Warriors IPO Preview for February 21 – February 25, 2022

February 23rd, 2022

With a shortened trading week due to Monday’s holiday, and rising tensions in Eastern Europe, it’s not surprising that there aren’t many IPOs on the calendar for this week, and we may expect a bit of a lull in IPO activity for the next few weeks.

On top of all that, the market is still adjusting valuations on ‘growth’ companies, a label that applies to virtually all companies that are considering going public, as the primary purpose of an IPO is to raise capital for growth and expansion of the company. I initially expected things to be rough in February, and hope that by the end of March we have a more settled market with conditions that pave the way for some of the more anticipated IPOs to emerge. In the meantime, we’ve been focused on lesser-known low-float IPOs: most of which have been losers, with a few that offered nice win opportunities. Due to personal circumstances related to evacuating from Ukraine, I’m unable to do any live-streaming these days, but will do what I can to try and help provide insights as to what to look for, what to avoid, and where there might be opportunities to scalp some profits in this tricky market.

Ok, Let’s jump in:

  • Akanda Corp (AKAN) – February 25, 2022 | 4M Shares

  • Cariloha (ALOHA) – February 25, 2022 | 2.3M Shares

Akanda Corp (AKAN) – February 25, 2022 | 4M Shares
Price Range:
$4.00
Offering Size:
$16M
Shares Outstanding:
28.9M

Industry: Cannabis

Overview:
This UK based company grows, manufactures, and distributes medical grade cannabis products, with facilities based out of Lesotho, Africa, with plans to open distribution in the United Kingdom and globally. They have not yet exported any cannabis products, or received any revenue from the sale of cannabis.

Considerations: This is certainly not something I would invest in based on basic business fundamentals, and don’t think that cannabis has much buzzworthiness to it these days. The market is in a serious funk right now, and if the current sentiment persists throughout the week, then I don’t think this will get much attention. The float is not low enough to be ultra-low float, so unless there is some kind of insider manipulation, I don’t see how this does anything but drop. The only wildcard is that it’s a Boustead offering, an underwriter that, for a time, seemed to produce demand out of thin air for every IPO it brought to market. But we’ve seen a number of poor performers recently, notably with VINE and HTCR getting dumped and/or hit with short seller attacks that provided relatively limited upside for debut trades (and nothing like the ripping halt-fests we used to see in their offerings).
Unless this is some kind of money laundering play for the Kingdom of Lesotho, I believe this is an IPO worth avoiding. Once the total shares outstanding are added to the float, this will become a very thinly traded stock, so beware.

Growth Numbers: No revenues

Baseline Financials:
No revenues

Notes from the F-1:
– Funds will be used to purchase property, plant, and equipment including construction of greenhouses, drying facilities, and an extraction facility.
– Risks: Highly competitive environment, regulations, success in cultivation
– Important to Know:
“the Representative may in its sole discretion and at any time without notice release some or all of the shares subject to lockup agreements prior to the expiration of the Lock-Up Period.”
So basically, the float could balloon at any time.

Underwriters:
Boustead

IPO Classification:
Low Float

Recent Similar IPOs: VINE FLGC

Trading Strategy:
I don’t see an angle here unless there are unknown strings that get pulled in rigging the float pre-debut. Were I able to pay attention to the pre-debut crossing, I’d be watching for low volume in the imbalancing numbers, and normal price action (likely to debut at $3.00 – $4.20): anything abnormal might indicate that something unexpected could happen. Either way, given that this is available for allocation requests on WeBull, I would expect a heavy sell-side imbalance on the pre-debut and an initial drop off the debut. So if you do see something compelling in the IPO pre-trading process, and there’s NOT a heavy sell-side imbalance, it may be worth a play. If there is something compelling in the IPO pre-trading process and you still see a sell-side imbalance, there may be an opportunity to pick off a dip-to-rip play with a debut trade set about 10% below the indication price, but this is pretty risky.
I simply don’t see anything compelling enough about this IPO to make it worth trading, but we’ve seen crazier things happen.

Brand Name Recognition:
None.

Debut Trade Conviction Level:
Very Low.

+++

Cariloha (ALOHA) – February 25, 2022 | 2.3M Shares
Price Range:
$9.00 – $11.00
Offering Size:
$25M
Shares Outstanding:
12.3M

Industry: Bedding/Linens

Overview:
This company makes bedding an apparel from bamboo products, and a core sales strategy involves marketing partnerships with cruise lines. Their growth numbers are weak, with negative baseline financials, and this is another Roth Capital offering.

Considerations: I didn’t like this one when it was scheduled to debut last week, and it’s not looking any better to me this week (even with a reduced price range). Here’s what I wrote last week:
Hard to find something less appealing: I mean, ok, it’s an alternative material that is probably at least billed as ‘eco-friendly’, but when your key marketing partnerships are all but shut down due to ongoing COVID restrictions, and you have nothing attractive in your financials (ok, we got 61% gross margins), why even attempt an IPO? And the underwriter is Roth?! When things are this bad, I start wondering if something’s up. Gonna have to circle back to this one, but topically, it’s not something I’d like to get in bed with.

Growth Numbers:
– Revenue Growth:
+1.2% for 9 months ending September 30, 2021
– Gross Profits:
+6.7% for 9 months ending September 30, 2021
– Gross Margin:
61% for 9 months ending September 30, 2021

Baseline Financials:
– Cash Flow:
negative – improving
– Net Income:
positive
– Operating Profit:
positive

Notes from the S-1:

Underwriters:
Roth Capital

IPO Classification:
Low Float

Recent Similar IPOs: hmm… maybe VINE: it was so bad it had to crash, and crashed on such a low float that it had to eventually get pumped.

Trading Strategy:
This IPO is gonna bomb unless it’s a hidden Stealth setup. It’s bad enough that perhaps a trading group corners it for a day or two and then pumps it..

Brand Name Recognition:
Low.

Debut Trade Conviction Level:
I don’t envision buying this on the debut under any circumstances, unless I somehow convince myself that it’s a Stealth setup. Probably won’t try to accumulate for a Day 2 pump on this one either… but will be watching the chart, Level 2 buying patterns, and feel it out.

+++

Quiet Period Expiration (QPX) Watch:

The SEC mandates that companies and underwriters refrain from making public statements for 40 days after an IPO begins trading. The QPX date marks a time when press releases may be issued that have the potential to move the stock price; especially companies whose price has dropped from the IPO.
These can present great trading opportunities ( I recommend this video here)

Upcoming QPX:
– February 21, 2022: Hillstream BioPharma (HILS)
– February 22, 2022: CFSB Bancorp (CFSB)
– February 28, 2022: Yoshitsu (TKLF)
– February 28, 2022: NSTS Bancorp (NSTS)

Lockup Period Expiration (LPX) Watch:

Most IPOs are subject to a 180 day lockup period before insiders and shareholders who owned shares of a company prior to the IPO can sell their positions. Typically, the dilutionary effect of this event will cause a stock price to drop, as supply increases without any fundamental changes in the value of the underlying company. Many investors will wait for LPX before starting a long term position in a company.

Upcoming LPX:
– February 22, 2022: RenovoRx (RNXT)
– February 23, 2022: SeqLL (SQL)
– February 28, 2022: DoubleDown Interactive (DDI)

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NOTE: this is not financial advice, and I am not a financial advisor: this information is just my opinion and is for informational purposes only. I may have or take positions in the equities mentioned in this article in the next 72 hours. Trading equities is risky. Do your own research,and trade your own trade.

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