For the past few weeks, low float IPOs are the only item on the menu these days in IPO Land, and all that we can look forward to in upcoming debuts. The consistent play has been to wait for a drop off the debut, accumulate later in the day – particularly in the final 15-20 minutes before the market close, and sell into an early run on Day 2. Beyond that, there are plenty of opportunities to take wins on recent low floaters that are hitting their lockup period expiration dates (LPX), as most of these have been beaten down along with the rest of the market over the past month or so, and are primed for impressive runs. Examples of recent low-float IPOs that have already run include HOUR, PIK, and NRSN: keep an eye out for HTCR, BJDX, CGTX, NXGL, IINN, VGFC and any other recent low floater that hasn’t spiked in a while.
Back to the IPO debut trade: we’ve seen each of the past two IPOs feature low-float offerings that were best avoided on the debut, with opportunities to accumulate shares later in the day for runs on Day 2. We saw this pattern repeat itself for a string of low-float IPOs in January, until it got played out with too many low-float IPOs debuting in the second week of February. I expect that we’ll see things follow a similar trend if we get a string of low-float IPOs going forward with their debuts in the upcoming weeks. What I’ll be looking for is relatively low volume on Day 1 coupled with a dip off the debut, and hold out for building a position until the end of the day. If I see an EOD dip on an IPO that’s fallen substantially from it’s debut price, and Day 1 volume lower than 50% of the free float, I’ll take that as a sign to take a position in hopes of catching a Day 2 run. The exit strategy will depend on what kind of pre-market action I see, but the easier play has been to wait for market open, and then ride a trailing stop-loss into an exit, with a target of 100%
Ok, Let’s jump in:
+++
Locafy (LCFY) – March 24, 2022 | 1.82M Units (1 share + 1 warrant)
Price Range: $4.50 – $6.50
Offering Size: $10M
Shares Outstanding: 18.5M
Industry: SaaS, Digital Marketing
Overview: This Australian company operates a SaaS-based model for offering businesses search engine optimization services to help them garner higher ranking for localized search results. Basically, they sell software that helps businesses appear higher in search results on Google for local businesses matching a users search criteria.
Considerations: While this company has demonstrated decent revenue growth of 29% for the 6 months ending December 31, 2021, any system that seeks to game Google’s local search results through automated processes (or even manually administered strategies), is constantly battling on an ever changing battlefield in which the rule-maker (Google) actively seeks to deter companies from gaining an advantage that isn’t in line with their goals of delivering accurate information and charging businesses for optimal listings. With negative baseline financials, and an underwriter not known for producing Day 1 pops, the game plan to accumulate on Day 1 and sell on Day 2 looks like the right setup. And even there, we need to take warrants into consideration, as the float will increase as the price exceeds the exercise price (which is blank in the current F-1 filing, but likely to match the IPO price).
Warrants are always a bit of a wildcard that don’t seem to be a benefit to low-float IPOs compared to those without warrants attached, but they also seem to ensure that the IPO will debut below the IPO price, and likely fall from there by the end of the day, giving us the target setup for a Day 2 run.
Growth Numbers:
– Revenue Growth: 29% for 6 months ending December 31, 2021
– Gross Profits: Not provided
– Gross Margin: Not provided
Baseline Financials:
– Cash Flow: negative – worsening
– Net Income: negative – worsening
– Operating Profit: negative – worsening
Notes from the F-1:
– Dependent on third party services and technologies
– Reliant on government subsidies and grants to fund growth
– 180 day lockup period by directors, officers, and principal shareholders
Underwriters: H.C. Wainright
IPO Classification: Low-float IPO
Recent Similar IPOs: DRCT
Trading Strategy: I expect this IPO to price at the low end of the range, so let’s say they get $4.50 per unit, though I believe $4.00 is likely; from there I would expect it to to debut below the IPO pricedue to the warrant inclusion. So perhaps it starts trading at $3.50 or so. From there, I would expect a sell-side imbalance on the debut, so a drop to $3.00 would be likely. Perhaps a slight recovery, maybe even a slight run, but am not expecting much upside on Day 1 in any of these, especially with warrants involved. I won’t be trying to trade any debut action unless I see unexpected strength in the pre-debut price matching. Otherwise, it’s a game of ‘wait and accumulate’ near the close of Day 1, with the hope of a run on the market open on Day 2.
Brand Name Recognition: Low.
Debut Trade Conviction Level: Moderate.
+++
Genius Group (GNS) – March 25, 2022 | 7.27M Shares
Price Range: $5.00 – $6.00
Offering Size: $43M
Shares Outstanding: 25.5M
Industry: Ed-tech
Overview: This Singaporean company specializes in online and offline educational services, including corporate training for major corporate clients including Deloitte, J&J, Vodafone, Google, IBM, Heineken, Lenovo, DHL, HP, and many other recognized international brands. With over 1.9M students and 9,00 partners on its GeniusU platform, this is a substantial player in the ed-tech space. Unfortunately, COVID has hurt their bottom line, and there are many competitors in the space who have moved into the virtual learning sector.
Their growth numbers are not nearly as impressive as other ‘growth’ companies posted in the 6 months ending June 30, 2021… which is essentially comparing metrics against the worst 6 months of the initial wave of COVID lockdowns. So with revenue up 40% in that period for 2021, I’m just not all that impressed with this company as a growth story: coupled with negative gross profit over the same period, and I just don’t see this as a company that many investors will get excited about buying in on the IPO.
Considerations: There’s nothing particularly sexy to me about this IPO, as the float is a bit large for a ‘low-float’ play and the underwriter has delivered a mixed bag of hits and misses. I don’t see this as a likely “Stealth IPO” setup, but will keep an eye out for any indication in the pre-debut price matching that would indicate otherwise. It has been rescheduled once already, which generally means they were unable to attract sufficient interest in the IPO, and it is still available on WeBull for retail buyers to request allocations. Not sure what kind of catalyst they could deliver to save this down the road either: perhaps an announcement of a big contract with a major company. Just doesn’t really fit the blueprint for trading low-float IPOs in any regard: UNLESS it turns out to be a stealth IPO (more on that later)
Growth Numbers:
– Revenue Growth: 40% for 6 months ending December 31, 2021
– Gross Profits: -26% in 6 mos ending December 31, 2021
– Gross Margin: 62% (pro forma)
Baseline Financials:
– Cash Flow: negative
– Net Income: negative
– Operating Profit: negative
Notes from the F-1:
– 12 month lock-up period for directors, 6 month lock-up period for shareholders
– 5M underlying share options at a weighted average exercise price of $6.41
Underwriters: Think Equity
IPO Classification: Low-float IPO
Recent Similar IPOs: UDMY
Trading Strategy: Unless this shows an unexpected debut premium on a low volume of shares offered for the opening trade, I will likely just pass on this IPO entirely. I expect all IPOs slated for this week to price at the low end of range given the current market conditions, and the fact that it failed to attract buyers last week and is still available for sale on WeBull as of the time of writing this. The float is too large to really attract the low-float crowd, so I’ll be watching this one from the sidelines
Brand Name Recognition: Low.
Debut Trade Conviction Level: Low
+++
Rail Vision (RVSN) – March 25, 2022 | 1.97M Units ( 1 share + 1 warrant)
Price Range: $8.00 – $10.00
Offering Size: $18M
Shares Outstanding: 13.95M
Industry: Imaging Technology / Automation
Overview: This Israeli company is developing imaging technology software for railway safety and operational systems. They are pre-revenue, with products still in pilot testing stage, so there are no financials available, though it does have some backing from entrenched industry players, such as German train braking producer Knorr Bremse.
Considerations: It’s hard to believe that there would be much demand for this offering, and with a price range of $8-10, it leaves too much downside for me to be interested in taking a play at the debut, unless we see microscopic numbers in the pre-debut imbalance volume (a la AERC). Otherwise, this one is a train to miss when it first leaves the station.
Growth Numbers:
– Revenue Growth: no revenue
– Gross Profits: no profits
– Gross Margin: N/A
Baseline Financials:
– Cash Flow: negative
– Net Income: negative
– Operating Profit: negative
Notes from the F-1:
– “Certain of our existing shareholders, including entities affiliated with certain of our directors and beneficial owners of greater than 5% of our share capital, have indicated an interest in purchasing up to an aggregate of $2.5 million of units in this offering at the initial public offering price per unit.”
This is the kind of language that makes me take pause and wonder if they might suppress volume and force a spike in the price off the debut, and why I’ll be looking for possible manipulation of the volume.
Underwriters: Aegis Capital
IPO Classification: Low-float IPO
Recent Similar IPOs: AERC
Trading Strategy: This one may be interesting to watch on the debut, although with warrants involved, I can’t imagine that it would demand a premium on the opening trade, and is more likely to drop a bit before it rebounds. If we see a fallout, then I’ll watch for a bottom towards the end of Day 1, and look to establish a position on a dip in the final 30 minutes of trading. The move would be to then look for a Day 2 pop, as we’ve mentioned several times in this newsletter: this is the setup we’re looking for right now.
The only possible curveball is that the float is so low, that if insiders do end up buying a substantial piece of the IPO, they could pinch the debut volume to such a low number that the price gets squeezed. If we see a pre-debut indication balance in double digits, then it might be tempting to jump in for a small play off the debut.
Brand Name Recognition: Low.
Debut Trade Conviction Level: Low
+++
