A number of high-profile companies have gone public this year and investors often wonder if it is a good idea to buy the stocks when they make their initial public offering.
Traders often try to make quick gains, and the volatility that regularly occurs in the first few days or initial weeks of trading can deter potential long-term investors. However, good companies tend to reward investors who take a position when the business first becomes available as a publicly traded stock.
Let’s take a look at two Canadian examples that have made some investors who bought the IPO quite rich.
Shopify
Shopify (TSX:SHOP)(NYSE:SHOP) went public in May 2015. On the first day of trading, the shares closed above $31 on the TSX Index. Today the stock trades at $425 per share at writing, giving Shopify a market capitalization of $47 billion. The stock is up more than 100% in 2019.
Shopify helps small- and medium-sized businesses sell their products online. Clients can choose from a full range of software and payment processing solutions that have made it possible for just about anyone to quickly make their products available to buyers around the world.
The company works off a subscription model where customers pay a monthly fee to use Shopify’s products and services.
Canopy Growth
Formerly known as Tweed, Canopy Growth (TSX:WEED)(NYSE:CGC) was the first Canadian marijuana company to go public. The stock finished its first day of trading in early April 2014 at about $2.60 per share with a market valuation of less than $100 million.
The early focus was to provide registered medical marijuana patients with reliable and safe supplies. Canopy Growth is the leader in the Canadian medical marijuana market and still sees the global medical marijuana market as a major opportunity.
Investors like to focus on the potential of the recreational market, including edibles and cannabis-infused drinks. In anticipation of the launch of the recreational pot market in Canada Canopy Growth attracted the interest of a major beverage player.
Constellation Brands, the maker of Corona, now owns a significant part of Canopy Growth after investing $5 billion in 2018.
Canopy Growth is widely viewed as the leader in the emerging international cannabis industry, and despite the recent departure of its founder, Canopy Growth appears to be on track to become a global marijuana giant.
At the current price of $51 per share at writing, Canopy Growth has a market capitalization of just under $18 billion.
The bottom line
Buying an IPO carries risk, as not all hot stocks continue to soar in the following years after they go public. However, those that are pioneers and show the potential to dominate their new industry can ultimately prove to be huge winners for buy-and-hold investors.
You have to be willing to stomach the volatility, but taking a small position in a top player in an emerging sector can give your portfolio a big boost in a relatively short period.
Forget Apple! Buy This TSX Stock Instead…
There’s something crucial you need to know about Apple’s stock today, especially if you already own it, know someone who does, or have even thought about buying it.
This revolutionary new technology involved in “Project Titan” should make any investor’s ears perk up.
But you may want to consider investing in a TSX-traded company that’s poised to have a drastically larger role in this new tech, and yet is less than 1% the size of Apple.
Discover why we’re especially excited about this tech opportunity for Canadian investors like yourself.
More reading
- RRSPs, TFSAs, and PPPs: Which Is Right for You?
- 3 Things to Watch on the TSX Index on Tuesday
- Why Aphria (TSX:APHA) Is a Better Buy Than Canopy Growth (TSX:WEED)
- Buy This, Not That: Energy vs. Marijuana
- This U.S. Cannabis Producer Would Be an Amazing Acquisition Target for Canopy Growth (TSX:WEED)
Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Fool contributor Andrew Walker has no position in any stock mentioned. Shopify is a recommendation of Stock Advisor Canada.
Source: The Fool
Should You Buy a Hot Stock on Its IPO Day?
The Fool
In all we do, we take a different approach.
We believe – and have proven over decades – that the individual investor can beat the market.
We believe that anyone can do it, even if they don’t have a lot of time or money to devote to investing.
We believe in a long-term outlook, helping people build wealth over time.
We believe that the person best positioned to take care of your financial future is you.
And we work tirelessly on behalf of our hundreds of thousands of members who are enjoying the opportunities that come with having enough money to do the things that matter to them.
While we are headquartered in Alexandria, Va., The Motley Fool advocates for the individual investor around the globe with offices in the UK, Australia, Canada, Singapore, and Germany.
