IPO for dummies. Part V: Life after IPO
Start and table of contents, see the first part .
And what could be expected next year after the IPO?
A year after (described in the previous chapter ) a successful IPO (albeit a past with a weak P / E equal to 12.5), five Petit shares cost $ 2,500, and a portion of the profit proportional to its share is $ 950. It is time to prepare the annual report ...
')
... and Peter is surprised to find that now the company's P / E is no longer 12.5. After a successful investment in equipment and content of money with an IPO, the company no longer brings $ 1,000 in profits per year, but $ 4,750, for each share there is $ 190 in profits, and the shares themselves cost $ 500.
It suddenly turned out that now his company's P / E is already 500/190 ā 2.6.
Two point six! This is not P / E, but FIG know what. And the average level in the industry, for example, typical fifteen!
And in the past (the very first) year, the P / E of the company was 12.5, all by concepts. It is logical to assume that it should not have deteriorated. Petya and Vasya regularly report how they are doing well, the market is growing ...
... I mean, market traders are likely to think that P / E at 2.6 is very, very undervalued stocks (āSomething is such a good company, and with such low P / E, you need to urgently buy stocks!ā ) and try to take advantage of the situation, raising the P / E at least to last year's 12.5. Yes, at least to 12.0.
And they can raise it in the only way. Raising the value of shares on the stock exchange.
And with the āusualā P / E at 12.0, and earnings equal to 190, we get that in a year the share can cost 12 * 190 = 2280 dollars.
And the cost of Petitās share will rise from 25 thousand rubles (before an IPO) and $ 2,500 (after an IPO) not even up to $ 3,000 (if an IPO passed at a P / E of about 15), to a chic 2280 * 5 = $ 1,100.
Are you happy for Petya?
Solid profit! And the value of the share will increase, and more dividends!
Haha, and who said what about dividends? High P / E and payment of good dividends are virtually mutually exclusive :)
The error lies, firstly, in the assumption that the market will automatically raise the P / E, which fell to 2.6, back to 12.0. After all, "the market is not a fool" to do something thoughtlessly, "out of habit." Secondly (which is connected with the first item) - that Petitās āprofit shareā will be $ 950. In fact, this amount will be its dividend - not a fact, nor is it that the profit will be paid at all;)
Let's take a closer look at the situation.
As we counted, before the beginning of the year P / E was equal to 12.5. It was based on the fact that dividends have just been paid at $ 40 per share.
And then the year ended, and opa, 190 per share. Only 190 of what? Arrived. Which is still in the company, and it is not yet decided whether it will be paid in dividends.
And here the market players begin to fluctuate. On the one hand, the company showed results much better than expected from it. On the other hand, in fact, these āresults are much betterā are the reason why a year ago P / E was 12 (with a hook), and not, say, 1 (without a hook). A year ago, she was expected to grow wildly due to the influx of money into the company after an IPO. Growth has happened.
What now? Should we, after a year of growth, wait for further development? Honestly, a decent P / E would be maintained on condition that the profits for the year would be reinvested in production, and not gone by dividends. The market was counting on constant growth when it raised its stock price a year ago. If the company pays dividends all its profits, this indicates that, according to the companyās executives, it has nowhere to develop. This is bad. This reduces the P / E rating.
Extreme options that can happen in a year, provided that the company receives 4,750 dollars of profit in a year:
A. The company will invest them all in development and will not pay dividends at all. Oh, this is good, we have a dynamically developing company, it has prospects. Over the next year, she probably will get even more profit. This will lead to a higher valuation of the stock. In the market, the stock price will rise. P / E is still high, for the company is optimistic about the future.
B. The company will not invest them in development, but pay dividends, at $ 190 per share. What does it mean? That the company is trivially unable to spend new money on growth. She reached her height; perhaps it cannot capture a larger share of the market due to competitors; perhaps it has already covered the entire market. What does it mean? What the company is no longer planning to grow. Prior to the decision (board of directors) to pay dividends, the P / E was relatively high; such a decision to pay all dividend income will give the market a signal of no growth prospects; the market will be upset, and the stock price will fall: oops, we have just explained the meaning of the encyclopedic phrase āa low P / E value indicates a stagnation in developmentā.
So, in fact, Petya will either receive $ 950 of dividends (and the value of his shares may even fall, as its previous value was calculated by the market based on assumptions of rapid growth over several years), or the value of its shares will rise to 11,400 dollars but not both at the same time. Well, or any intermediate value.
Still, it's better than $ 500 in profits and a laptop with half a server before an IPO, isn't it?
Typically, young, dynamic, developing companies invest all profits in production, so the value of their shares is growing so actively, which is why they have a high P / E. At the same time, of course, they either do not pay any dividends at all, or pay very, very little (of the money that for some reason did not invest in production for the next year). At the same time, well-developed companies, firmly established in their market niche and already incapable of developing further, pay good dividends; therefore, their stock price is quite stable and does not grow significantly.
In the next part : the difficulty of choosing - two Lamborghini Gallardo or one Aventador?
And what could be expected next year after the IPO?
A year after (described in the previous chapter ) a successful IPO (albeit a past with a weak P / E equal to 12.5), five Petit shares cost $ 2,500, and a portion of the profit proportional to its share is $ 950. It is time to prepare the annual report ...
')
... and Peter is surprised to find that now the company's P / E is no longer 12.5. After a successful investment in equipment and content of money with an IPO, the company no longer brings $ 1,000 in profits per year, but $ 4,750, for each share there is $ 190 in profits, and the shares themselves cost $ 500.
It suddenly turned out that now his company's P / E is already 500/190 ā 2.6.
Two point six! This is not P / E, but FIG know what. And the average level in the industry, for example, typical fifteen!
And in the past (the very first) year, the P / E of the company was 12.5, all by concepts. It is logical to assume that it should not have deteriorated. Petya and Vasya regularly report how they are doing well, the market is growing ...
... I mean, market traders are likely to think that P / E at 2.6 is very, very undervalued stocks (āSomething is such a good company, and with such low P / E, you need to urgently buy stocks!ā ) and try to take advantage of the situation, raising the P / E at least to last year's 12.5. Yes, at least to 12.0.
And they can raise it in the only way. Raising the value of shares on the stock exchange.
And with the āusualā P / E at 12.0, and earnings equal to 190, we get that in a year the share can cost 12 * 190 = 2280 dollars.
And the cost of Petitās share will rise from 25 thousand rubles (before an IPO) and $ 2,500 (after an IPO) not even up to $ 3,000 (if an IPO passed at a P / E of about 15), to a chic 2280 * 5 = $ 1,100.
Are you happy for Petya?
Solid profit! And the value of the share will increase, and more dividends!
Haha, and who said what about dividends? High P / E and payment of good dividends are virtually mutually exclusive :)
The error lies, firstly, in the assumption that the market will automatically raise the P / E, which fell to 2.6, back to 12.0. After all, "the market is not a fool" to do something thoughtlessly, "out of habit." Secondly (which is connected with the first item) - that Petitās āprofit shareā will be $ 950. In fact, this amount will be its dividend - not a fact, nor is it that the profit will be paid at all;)
Let's take a closer look at the situation.
As we counted, before the beginning of the year P / E was equal to 12.5. It was based on the fact that dividends have just been paid at $ 40 per share.
And then the year ended, and opa, 190 per share. Only 190 of what? Arrived. Which is still in the company, and it is not yet decided whether it will be paid in dividends.
And here the market players begin to fluctuate. On the one hand, the company showed results much better than expected from it. On the other hand, in fact, these āresults are much betterā are the reason why a year ago P / E was 12 (with a hook), and not, say, 1 (without a hook). A year ago, she was expected to grow wildly due to the influx of money into the company after an IPO. Growth has happened.
What now? Should we, after a year of growth, wait for further development? Honestly, a decent P / E would be maintained on condition that the profits for the year would be reinvested in production, and not gone by dividends. The market was counting on constant growth when it raised its stock price a year ago. If the company pays dividends all its profits, this indicates that, according to the companyās executives, it has nowhere to develop. This is bad. This reduces the P / E rating.
Extreme options that can happen in a year, provided that the company receives 4,750 dollars of profit in a year:
A. The company will invest them all in development and will not pay dividends at all. Oh, this is good, we have a dynamically developing company, it has prospects. Over the next year, she probably will get even more profit. This will lead to a higher valuation of the stock. In the market, the stock price will rise. P / E is still high, for the company is optimistic about the future.
B. The company will not invest them in development, but pay dividends, at $ 190 per share. What does it mean? That the company is trivially unable to spend new money on growth. She reached her height; perhaps it cannot capture a larger share of the market due to competitors; perhaps it has already covered the entire market. What does it mean? What the company is no longer planning to grow. Prior to the decision (board of directors) to pay dividends, the P / E was relatively high; such a decision to pay all dividend income will give the market a signal of no growth prospects; the market will be upset, and the stock price will fall: oops, we have just explained the meaning of the encyclopedic phrase āa low P / E value indicates a stagnation in developmentā.
So, in fact, Petya will either receive $ 950 of dividends (and the value of his shares may even fall, as its previous value was calculated by the market based on assumptions of rapid growth over several years), or the value of its shares will rise to 11,400 dollars but not both at the same time. Well, or any intermediate value.
Still, it's better than $ 500 in profits and a laptop with half a server before an IPO, isn't it?
Typically, young, dynamic, developing companies invest all profits in production, so the value of their shares is growing so actively, which is why they have a high P / E. At the same time, of course, they either do not pay any dividends at all, or pay very, very little (of the money that for some reason did not invest in production for the next year). At the same time, well-developed companies, firmly established in their market niche and already incapable of developing further, pay good dividends; therefore, their stock price is quite stable and does not grow significantly.
In the next part : the difficulty of choosing - two Lamborghini Gallardo or one Aventador?
Source: https://habr.com/ru/post/122028/
All Articles