The ongoing market decline that has persisted since the beginning of the year, spurred by inflation which has negatively impacted the market’s appetite for growth stocks, has resulted in a drought of mainstream IPOs, though we’ve had plenty of action in the form of low-float IPOs from questionable companies brought to us by second-tier underwriters. After last week’s Fed action to implement a historically colossal .75% rate hike on Wednesday, the market initially responded with a remarkably positive bounce, which appeared to dissipate on Thursday, but regained momentum going into the long weekend. Some experts forecast further attrition, but it seems we’re starting to hear the first murmurings of having reached a “bottom”. With a pent up supply of IPOs eagerly awaiting more favorable conditions into which they can make the step into the public markets, the sooner that financial environments for growth stocks rebounds, the more likely we’ll have mainstream IPOs lining up to debut their public offerings.
As we’ve seen in the past, mainstream underwriters seem to have a pretty good read on market conditions. When we see mainstream IPOs begin to peak their heads out into the domain of the public markets, we may interpret this as a signal that the market is showing signs of relative strength. We also see that even low-float IPOs tend to be scarce in the worst of times, and the last few weeks produced only a trickle of almost laughably bad companies that chose to debut despite frigid circumstances.
So this week, with no less than 6 IPOs on the calendar, including one mainstream IPO, and possible Stealth IPOs lurking in the shadows, it feels like we might be looking at a turnaround in the market, though how long it lasts is anyone’s guess. Some of the best plays to be looking at if the market shows signs of rebounding are recent IPOs that have been beaten down along with the rest of those labeled ‘growth’: tickers like U, S, SNOW, ABNB, DOCS, PATH, and ARRY have already bounced somewhat from last week’s bottoms, but could rally substantially from here if interest returns to growth at any pace.
But I’m not really trying to call bottoms or take long term positions in this market: I’m focused on trading IPOs this week: with potential Stealth IPO setups, and abundance of ultra-low-floaters, and a mainstream IPO that could provide a relatively fair entry for retail traders, along with a trend of recent low-float IPOs running hard as they hit their Lockup Expiration (LPX), there is plenty of action to be had in IPO land: that’s where my focus will be, and what I’ll be dissecting with the rest of this newsletter.
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This Week’s IPOs:
Golden Sun Education Group (GSUN) – June 22, 2022 | 4.4M Shares
bioAffinity Technologies (BIAF) – June 22, 2022 | 1.5M Units
Wearable Devices (WLDS) – June 23, 2022 | 3.6M Shares
Mobilicom (MOB) – June 23, 2022 | 2.15M Shares
Onfolio (ONFO) – June 23, 2022 | 1.7M Shares
Ivanhoe Electric (IE) – June 24, 2022 | 14.4M Shares
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Ok, Let’s jump in:
Golden Sun Education Group (GSUN) – June , 2022 | 4.4M Shares
Price Range: $4.00 – $5.00
Offering Size: $20M
Shares Outstanding: 17.4M
Industry: Education
Overview: This Chinese private education company operates a primary school and a secondary school in Wenzhou, China along with a handful of education centers and a logistics company catering to educational centers.
Considerations: I first picked up on GSUN back in May 2021 when it hit my scanners due to the underwriter and the almost flagrantly uninteresting nature of the company. China has been clamping down on private education, as it seeks to force financial parity on its massive population rife with the kind of financial disparity that keeps PNC party leaders up at night. Therefore, the likelihood of this company becoming a highly profitable enterprise worthy of any kind investment is ludicrous. The financials are bad, not to mention, way outdated (provided for the fiscal year ending September 30, 2020), and in case you haven’t heard, China is still enforcing massive lockdown restrictions as it continues to struggle with containing COVID. When I see an underwriter like Network 1 Financial bring a Chinese company public, I’m already sitting on the edge of my seat expecting a Stealth debut, and when the underlying company is this bad, I am simply waiting and hoping that the debut price isn’t out of range for a significant move to the upside: this is the company that brought us TIRX, CNEY, CPOP, AUVI, and way before that – the legendary scam IPO LFIN: perhaps the original Stealth IPO that ran from $6.65 to a high of $142 on Day 2.
Growth Numbers: (ok, gonna run through these as a matter of practice, but if you’re worried about the financial strength of this company in assessing whether to play the IPO debut, you’re significantly misunderstanding the premise of the Stealth IPO setup).
– Revenue Growth: -14% for fiscal year ending September 30, 2020
– Net Income: -98.4% for fiscal year ending September 30, 2020 (yeah, it went from $3.5M to $54k in one year).
Baseline Financials:
– Cash Flow: negative
– Net Income: negative
– Operating Profit: negative
Notes from the F-1:
– Risks: “…it is uncertain whether we or our PRC subsidiaries will be required to obtain additional approvals, licenses, or permits in connection with our business operations pursuant to evolving PRC laws and regulations, and whether we would be able to obtain and renew such approvals on a timely basis or at all. Failing to do so could result in a material change in our operations, and the value of our Class A Ordinary Shares could depreciate significantly or become worthless.”
Essentially, unless China reverses their policy decisions regarding whether private education is allowed to make profits, this company is trash.
Underwriters: Network 1 Financial
IPO Classification: Stealth IPO
Recent Similar IPOs: OST JCSE
Trading Strategy: Like any Stealth IPO, I’m watching first for confirmation that it’s a Stealth setup: evident with a debut price significantly above the IPO price, and second, I’m watching for a playable entry point and lowish volume on the opening print. This can be tricky when allocation requests are available to retail traders on WeBull, as this one is (note: I have put in for a small allocation request: notes on this further down the page).
The specific setup I’m looking for in the pre-debut share balancing, is for volume around 100k shares or less for the opening trade, and a price target no higher than $17.00. As we saw with LYT last week, once we get up to $20 and above, there isn’t much room for an easy upside play off the debut. Since all these setups have historically run down to $2 and lower in the near-future, the downside risk once the share price tops $20 becomes increasingly potent. So for my risk tolerance, a debut price in the $10-$16 range is ideal, and I remind myself not to take such a large position that my buy order can be affecting the opening bid price (more than 1,000 shares and you can be asserting real gravity against your own position).
Brand Name Recognition: Low.
Debut Trade Conviction Level: High.
This is almost certainly a Stealth IPO setup: if it’s a fakeout, well, then good for them, they got us. More likely, the question is simply whether they give us retail traders a chance to buy in at a debut price that is not overly inflated to begin with. They let us get into CPOP at $12.26 before it rocked up to $34.87 on Day 1, then continued to peak at $78 on Day 2. JZXN, on the otherhand, debuted at $45 and crashed down as low as $17.06 on Day 1, reaching single digits on Day 2. Both trade under $1.50 today.
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bioAffinity Technologies (BIAF) – June 23, 2022 | 1.5M Units
Price Range: $6.75
Offering Size: $10M
Shares Outstanding: 7.5M
Industry: Biotech
Overview: This is a diagnostics company focusing on non-invasive diagnosis of early-stage lung cancer and other lung diseases. They are per-revenue, and their lead diagnostic test is slated for FDA submission in Q3 2022, and expected to take 2-3 years.
Considerations: This one doesn’t have anything particularly enticing about it, the price point at $6.75 offers plenty of downside, as it likely comes down to the $2 zone as demand disappears once the IPO concludes; the Units mean there are warrants issued alongside the common shares in the offering and almost guarantees a debut below the IPO price; and the underwriter has not sponsored an IPO in the past 12 months. Ostensibly, short term catalysts tied to the company’s lead candidate seem to be relatively distant in the future. Having said that, when it’s ultra-low-float, and it appears bad on the surface, any kind of manipulation in the trading volume could produce volatility: as we saw with HSCS last week, the Day 2 runner can emerge at any moment: particularly when we least expect it, so I’ll at least be keeping watch on this one, albeit from the corner of my eye. In the near-short term, say 180 days, there are some potential catalysts as it aims to proceed with commercialization of its lead candidate “as an LDT under the CLIA program administered by the Centers for Medicare and Medicaid Services”… so with a microscopic float, any positive headline could trigger a run to the exercise of the warrants (see below in the S-1 notes).
Growth Numbers: none: it’s pre-revenue
Baseline Financials: with no revenue, they’re all negative.
Notes from the S-1:
– 14 of our current stockholders have indicated an interest in purchasing Units in this Offering and we currently anticipate they may purchase approximately 6.2% of the Units in this Offering not assuming the exercise of the Over-Allotment Option
Actually, this is kind of rare, and since they already control 46% of the voting power of the common stock, the float is likely to be restrained.
– Having completed the CLIA analytical validation, Precision Pathology is offering the CyPath® Lung test for sale with a controlled rollout beginning in Texas, which we anticipate will require six months, before expanding throughout the Southwest region of the U.S. through the first half of 2023. After establishing CyPath® Lung in the Southwest market, the laboratory will expand sales in 2023 to additional states with plans to market the test nationwide.
This aligns very nicely with a 180-day LPX, and warrant EP of 120% of the IPO price, ($8.10 based on the IPO price of $6.75). Keep that in mind if you want to pick this up on any pullbacks prior to LPX.
Underwriters: WallachBeth Capital
IPO Classification: Low Float Biotech (aka “Biotech Bust”)
Recent Similar IPOs: HSCS (and not TNON… at least I can’t expect it to do what TNON did, which turned out to be akin to a Stealth IPO setup and was priced substantially higher that this one.
Trading Strategy: I’ll be watching this one with no intention of playing it unless:
A) we see a significantly low volume on the opening print with a significant debut premium.
or
B) it tanks as hard as HSCS on Day 1 and falls throughout the day with no real reversal. So basically, it would have to fall below $2.00 into the close of the market, and then I’d take a flier on a possible Day 2 rally.
Brand Name Recognition: Low.
Debut Trade Conviction Level: Low
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Wearable Devices (WLDS) – June 23, 2022 | 3.6M Shares
Price Range: $5.20 – $7.20
Offering Size: $0M
Shares Outstanding: 14.84M
Industry: Wearable Technology
Overview: This Israeli-based company makes a wrist-worn (bracelet) that senses nerve and muscle movements (“Surface Nerve Conductance”) in the wrist to determine finger actions to deliver an electronics control system with potential metaverse/virtual reality applications, as well as remote industry, robotics, smart home, and sports analytics applications. It’s also available for the iWatch, so it’s does have integrations with devices that are already well positioned in the marketplace.
Considerations: This actually sounds pretty frickin’ cool, but while gimmick along may have worked in the low-float IPOs of 2020 and 2021, this company seemingly just missed the ‘metaverse-hype’ craze that sent RBLX up to $140+ and MMTR as high as $37 in late November 2021 (they currently trade at $26.87 and $4.12 respectively). As far as strong IPO debuts driven purely on the trend and story behind the premise of the company, we haven’t really seen one deliver upside gains off the debut since LITM gave us an opening run from an open at $11.50 to a high at $18.40 on the premise of being a lithium miner (it now trades at $3.24).
While this company does deliver impressive growth numbers in terms of %, the real numbers themselves are rather small ($107k revenue in the 6 months ending June 30, 2021), and as futuristic as their technology sounds, I’m not sure the market is going to get overly excited about grabbing a piece of this company right out of the gate.
Bear in mind that recent high-tech IPOs out of Israel have not performed particularly well either: with MTEK and to a lesser-degree: SVRE each providing ample opportunity to lose money off their debuts.
Growth Numbers:
– Revenue Growth: +214% for 6 months ending June 30, 2021
– Gross Profits: +233% for 6 months ending June 30, 2021
– Gross Margin: 93% for 6 months ending 31, 2021
Baseline Financials:
– Cash Flow: negative – improving
– Net Income: negative – improving
– Operating Profit: negative – improving
Notes from the F-1:
– A significant amount of the funding from the IPO will go directly towards manufacturing and marketing their “Madura Band” for the Apple watch. Which is pretty encouraging IF this product catches on, but not really a factor that can be assumed as fact at the time of their IPO.
This also reminds me that we’re in the midst of a serious supply-chain crisis, and the likelihood of production delays seems almost certain.
Underwriters: Aegis Capital
IPO Classification: Low Float IPO
Recent Similar IPOs: MTEK SVRE
Trading Strategy: I don’t see this one doing particularly well off the debut: we just haven’t seen anything run off the opening print on story alone, and the float isn’t that microscopic in comparison to the sub-2M float debuts we’ve had recently. It’s been on-and-off-again for a few weeks now, and is still available for pre-order on WeBull, so this is one I’ll watch from the sidelines for now.
Brand Name Recognition: Low.
Debut Trade Conviction Level: Low.
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Mobilicom (MOB) – June 23, 2022 | 2.15M Shares
Price Range: $3.80 – $4.75
Offering Size: $17M
Shares Outstanding: 4.3M
Industry: Drone cybersecurity
Overview: Here we have another Israeli tech company, this one is an uplisting from the Australian stock exchange – the company itself develops combination hardware/software cybersecurity products for drones and UAVS with both commercial and military applications.
Considerations: Military drones have been somewhat in the spotlight due to their use in the Russia/Ukraine conflict; with reports of heavy anti-drone hacking impacts on both sides, there’s an argument to be made that there will be relatively high demand for products in this niche. Given the lower float, lower price point, and more relevant story behind this stock, if I had to pick between WLDS and MOB, I think I’d lean towards MOB (though that’s without knowing where either one will actually debut). This one is also available for pre-order on WeBull, and the underwriter – Think Equity – is somewhat due for an IPO that doesn’t outright dump off the debut. I don’t particularly like uplistings either, so I am pretty hesitant to see this one as debut buy. Perhaps if it gets hyped up on social media, but it’s more likely that the market it still to soft to push any IPO debut on story alone, and this one is just interesting enough to keep it from outright tanking – with a price point that minimizes the downside risk: which ultimately creates a situation where it will rise off dips and sell off any rips to the extent that it maintains a range slightly below the IPO price… until interest wanes and the price gradually descends to the $2.00 level and below. Like MTEK, it could make short-lived runs on small contract or buy-back news down the road, but I don’t see a clear IPO debut trade on this one.
Growth Numbers:
– Revenue Growth: +75% for 2021 vs 2020
– Gross Profits: +80% for 2021 vs 2020
– Gross Margin: 67% for 2021
Baseline Financials:
– Cash Flow: negative – slightly improving
– Net Income: negative – slightly improving
– Operating Profit: negative – slightly improving
Notes from the F-1:
– Risks: expected cost increases to fund R&D
Underwriters: Think Equity
IPO Classification: Low Float IPO
Recent Similar IPOs: MTEK SVRE
Trading Strategy: I’d love to see this one debut with a slight premium to the IPO price, but I doubt that will happen: if we do, I’ll try taking a small position on the debut. Otherwise, the most likely scenario I see playing out is a debut along the lines of MTEK: something like a sell-off, slight reversal that doesn’t quite break out over the IPO price, followed by another sell-off that never gets quite low enough to provide minimal downside risk, and runs that get sold off before the materialize into substantial win opportunities.
Brand Name Recognition: Low.
Debut Trade Conviction Level: Moderate.
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Onfolio Holdings (ONFO) – June 23, 2022 | 1.7M Units
Price Range: $4.50 – $5.50
Offering Size: $15M
Shares Outstanding: 12.92M
Industry: Websites
Overview: This company acquires and manages cash flow positive websites in several industry verticals with 38 websites in their portfolio. They claim to generate over 4M monthly visits across their network, and from a list of case studies published on their website covering companies they decided NOT to buy-out, it seems they find target companies on website flipping platforms, and are considering some companies with less than $100k in annual revenue. The offering is for ‘units’ that consist of one share of common stock and two warrants.
Considerations: First off… two warrants?! Few IPOs have done well off the debut with just one warrant, let alone two warrants, and these are both redeemable at the IPO price, so there’s little chance that this runs much higher than the IPO price before warrant holders start dumping their shares. The company itself is not exciting: basically a bunch of relatively small websites that, individually, would be nowhere near IPO consideration, yet packaged together, somehow justify publicly listing this company on the NASDAQ.
The IPO should basically allow them to go buy even more websites to add to their stable of web properties, though they claim to not have any specific targets in mind. They also haven’t really demonstrated much skill in improving the performance of the websites they’ve purchased, as their growth numbers and baseline financials appear to be universally headed in the wrong direction.
I almost wonder why they’re even doing an IPO.
Growth Numbers:
– Revenue Growth: -25% for 3 months ending March 31, 2022
– Gross Profits: -44% for 3 months ending March 31, 2022
– Gross Margin: 42% for 6 months ending 31, 2021
Baseline Financials:
– Cash Flow: negative – getting worse
– Net Income: negative – getting worse
– Operating Profit: negative – getting worse
Notes from the S-1:
– “As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering.”
So basically, you just want some money from investors for the hell of it, and don’t really have any specific plans on what you’re going to do with it, right?
Onfolio: Yeah, that’s about it. but in the meantime,
”Pending the use of the net proceeds of this offering, we intend to invest the net proceeds in short-term investment-grade, interest-bearing securities.
I hope it’s not going into one of those BitCoin services that pays interest on your holdings.
Underwriters: EF Hutton
IPO Classification: Low Float IPO
Recent Similar IPOs: HOUR (sorta, but not expecting this kind of run)
Trading Strategy: With 2 warrants involved, an EP at 100% of the IPO price, and being offered on WeBull, I don’t see how this offers even the hope of any upside.
Brand Name Recognition: Low, but maybe some of the websites they own have limited brand recognition.
Debut Trade Conviction Level: Low.
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Ivanhoe Electric (IE) – June 4, 2022 | 14.4M Shares
Price Range: $11.00 – $12.50
Offering Size: $175M
Shares Outstanding: 0M
Industry: Mining and Energy Storage
Overview: This is the first mainstream IPO we’ve seen since May with PFHC and EE in April before that. Ivanhoe is a metal mining company operating in America and overseas, and sells related technologies to other miners.
Considerations: I almost hesitate to label this as a “mainstream IPO” given that the lead underwriter is BMO Capital – an outfit that hasn’t been the lead underwriter on any IPOs in the past 12 months, but with Jefferies and JP Morgan attached, along with the substantial size of the deal, it’s certainly not a shady second-tier offering.
With that in mind, I do tend to like mainstream IPOs that debut in a cold market, especially if they come out right when the market is entering a reversal off bottoms. When the market is red-hot, for example in the second half of 2020 and first half of 2021, virtually every IPO debuted trading on the public markets with an incredible premium to the IPO price. A prime example: SNOW opened trading at $245 after pricing the IPO at $120 (which was way above the initial projected range). It still gave us an opening run up to $320 before reversing, and provided substantial upside from there over the next couple months (before receding since then to hit prices below even the IPO price, along with the rest of growth stocks).
In contrast, weak markets are anemic for IPOs, which means that when a mainstream IPO comes along and is willing to brave the chill of frosty market conditions, we get more reasonable pricing relative to traditional valuation. The underwriters still need to deliver a modest upside to their institutional investor clients, so we tend to see pricing fall within or below range, and retail demand is typically subdued a bit, so we don’t get extreme debut premiums. Looking back at EE and PFHC, we saw both of them provide debut entries with little downside risk, and while EE didn’t really offer much upside profit either, it did give debut buyers plenty of outs in the first 3 days of trading, while PFHC offered a nice little run on Day 1.. and broke out for a more profitable rally over the weeks following the IPO.
Beyond the market conditions, this company is a mining company and in addition to gold and silver, they mine metals that are used in electric vehicles, and that’s something that’s heavily in the spotlight these days. The float is pretty small for a mainstream IPO as well, and their growth numbers are rather impressive.
JP Morgan also tends to leave at least a little bit of meat on the bone for retailers to pick at.
Growth Numbers:
– Revenue Growth: +333% for 3 months ending March 31, 2022
– Gross Profits: +440% for 3 months ending March 31, 2022
– Gross Margin: 99% for 3 months ending March 31, 2022
Baseline Financials:
– Cash Flow: negative – improving
– Net Income: negative – improving
– Operating Profit: negative – improving
Notes from the S-1:
–
Underwriters: BMO Capital Markets, Jefferies, JP Morgan
IPO Classification: Mainstream IPO
Recent Similar IPOs: EE PFHC
Trading Strategy: If the market is strong this week, and there is a buy-side imbalance with not too heavy of a debut premium, I like this IPO for a $1-2 upside to the debut price, and possibly more. Similarly, if we see it price at the low end of range, and debut below that, I like the chances of a move back up to and beyond the IPO price (the underwriters are likely to protect the price anywhere below the IPO price).
Brand Name Recognition: Moderate.
Debut Trade Conviction Level: Moderate-High.
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