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Today we’re taking a walk down memory lane and looking at some of the most notable bad IPOs that bounced back. When a company flops on debut, it is bad for all people involved – the brokers, the company’s management or investors. Investors who aren’t in the stock can be too nervous to buy in. So most companies that have bad debuts struggle to recover…but not all, as these companies show.
5 bad IPOs that bounced back
Collins Foods (ASX:CKF)
This company is a franchisor of KFCs and Taco Bells in Australia, Germany and the Netherlands. It listed in 2011 and has proven to be a very good long-term investment.
Unfortunately, it was not a good IPO. Collins Foods raised A$200m at $2.50 per share, but fell to nearly $1 in less than 12 months. The reason was the company committing one of the cardinal sins of the market, missing its prospectus forecasts, downgrading its profit expectation from $10m to $8m, given high competition and low consumer confidence.
The last decade or so has been much better. The company got out of buffet franchise Sizzler and into Taco Bell. It also built up its base of KFC restaurants over time. While off its all time highs, it now trades at nearly $10 per share and has made back to back profits of over $50m.
This is a very recent case study of a bad IPO that has become good. Chrysos’ technology is high-powered X-rays that process rock samples of gold and other metals. Investors shunned the company because it was not profitable, highly reliant on the gold market for its revenue and also on suppliers in China for the manufacturing of its devices.
But 18 months on, it just raised capital at a premium to its IPO price. It improved its top and bottom lines and secured major partnerships with Barrick and international laboratory business MSALABS earlier this month.
Meta’s 2012 IPO was so bad that Mark Zuckerberg moved his mortgage away from broker Morgan Stanley. The reason it did poorly was not because it was not growing, but because investors just couldn’t comprehend the idea that the business model it proposed would go mainstream – namely, ads on small screens.
More than a decade on, I think we can see who was wrong. And it’d take a brave investor to bet against this company all over again.
We wrote about this company only last week. After undertaking its IPO in May 2019, the first few months were terrible as its losses kept growing larger and larger, peaking at US$5bn in a single quarter. The company was still at war with many regulators and facing cut-throat competition.
However, if you fast forward to 2023, things are much better. Uber is about to report an annual profit for the first time ever, has either won or favourably settled all the wars it has been in, and has the right management team to take it to the next phase of growth.
This company sells shoes that were supposed to be good value for money for Gen-Xers. The stock wasn’t just a bad IPO because it underperformed. It was taken public by infamous penny stock brokerage Stratton Oakmont – Steve Madden (the founder, not the company bearing his name) was allegedly friends with Jordan Belfort privately and was promised that US$600,000 could be raised. Madden did jail time himself.
But as for the company, it gained 1000% between 2009 and 2019 – and for good reason. It now sells over US$2bn of shoes every year.
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