Investing in IPOs in the Saudi market has proven to be highly lucrative, boasting a remarkable 73% success rate. With this golden period predicted to last a few more years, savvy investors are eager to capitalize on the opportunities it presents. To maximize your success in this promising landscape, let's explore the golden rules for selecting IPO stocks.
Tadawul IPO Index Outshines TASI
Since its launch in September 2023, the Tadawul IPO Index has risen by approximately 16.8%, while the TASI index has increased by about 4.9% over the same period. This means the IPO index has outperformed by roughly 11%.
In theory, if we could subscribe to every new stock, we'd likely see good returns. However, this is difficult to achieve in reality, and the performance of different IPOs varies significantly. For example, MBC Group's stock price rose 148% within a month of listing, while East Pipes fell 36% in the same timeframe. Therefore, mastering the skills to select IPOs is crucial.
Key Indicators for Selecting Winning Stocks
Based on our data analysis, we recommend focusing on key indicators such as retail investor subscription multiples, overall market trends, industry factors, and institutional investor subscription multiples.
Golden Rule NO.1: The Power of Retail Investor Enthusiasm
The retail investor subscription multiple is one of the most crucial indicators, reflecting the supply and demand for the new stock. For instance, if a company offers 1000 shares to retail investors and 5000 investors subscribe for a total of 5000 shares, the retail subscription multiple would be 5 times. Our research shows that when the retail subscription multiple exceeds 7.5 times, the first-day gains of the IPO tend to increase significantly.
Golden Rule NO.2: Riding the Market Waves
Secondly, overall market performance is important. A strong market tends to boost new stocks, which is why IPOs often prefer to list when market sentiment is high. So how can we determine the probability of future market movements? From a technical perspective, you can pay attention to indicators like moving averages and trading volume. Generally speaking, when the market index is above both short-term and long-term moving averages (e.g., the 5-day, 20-day, and 50-day moving averages) and trading volume is increasing compared to previous periods, market sentiment is usually positive. You can find these indicators on the Sahm app.
Golden Rule NO.3: Targeting High-Growth Sectors
Third are industry factors. Generally, newer concepts and industries with stronger growth potential receive higher valuations and are more sought after by investors. Examples include biotechnology, internet, and new energy sectors, which are also areas of focus for Saudi government development. For example, Jamjoom Pharma (4015) is a biotechnology company that falls under the category of the new economy. Its stock price surged by 104% within a month of its IPO.
Golden Rule NO.4: Weighing Institutional Subscription Multiples
Fourth is the institutional investor subscription multiple. This indicator is relatively less effective compared to the first three, because retail investors in the Saudi market are more enthusiastic about trading newly listed stocks compared to institutional investors, the subscription multiple for retail investors is more significant.
Where to Find These Indicators
Lastly, let's discuss where to find this data. We recommend that everyone prioritize using the official websites of companies that are about to go public. These websites usually disclose detailed IPO information. However, the subscription multiples for institutional and retail investors mentioned above may not always be included. It is advisable to use search engines to gather this information. Now, go ahead and use this knowledge for your IPO trading! Good luck!
