When evaluating IPOs, retail investors should really resist Fomo

SINGAPORE’S initial public offering market has finally shown signs of life after several lean years, a welcome development since a healthy stock market needs a steady supply of new companies to broaden investor choice and replenish the listed universe.

However, investors should not ignore one uncomfortable statistic: Seven of the eight companies that have listed on the Singapore Exchange (SGX) this year are now trading below their offer prices.

Admittedly, several have been listed for only a few months, so it would be premature to judge their long-term prospects purely on what may well be short-term underperformance.

Nevertheless, when such a high proportion of IPOs fall below their issue prices relatively soon after listing, questions inevitably arise about the causes – with overly aggressive pricing top of the list.

Given that the Straits Times Index has been trading at record levels and local stocks have enjoyed considerably greater investor interest over the past year, prospective listees and their underwriters are naturally tempted to launch their offers quickly.

But buoyant market conditions might also encourage issuers to push valuations towards the upper limit.

While existing shareholders naturally want to maximise sales proceeds and companies aim to raise as much capital as possible with minimal dilution, IPO pricing requires balance.

If too much of the potential upside is captured by the vendor at listing, insufficient value is left on the table for incoming investors, resulting in disappointing aftermarket performance.

JustCo provides one striking example. It listed in May at S$0.94 a share but was traded down to S$0.60 apiece by Aug 25 – a 38 per cent loss in three months.

Meanwhile, Toku, which listed amid much hype in January with a 31.9 times subscription rate and a first-day closing price of S$0.285 (versus its S$0.25 offer), now trades at S$0.15 – down 40 per cent in eight months.

Beyond pricing, size is another factor to consider.

Larger IPOs are generally better positioned to attract institutional investors because fund managers need sufficient market capitalisation, free float and trading liquidity before taking meaningful positions.

Smaller companies face a different reality. They may attract considerable attention during the IPO but once the initial excitement subsides, trading volumes can quickly diminish.

None of this means investors should avoid IPOs altogether.

Other considerations

New listings can provide excellent investment opportunities, and some companies undoubtedly grow substantially after entering the public market.

But an IPO should never be bought simply because it is new, heavily marketed, launched during a bull market or reported to be heavily subscribed.

Retail investors should examine valuation, profitability, cash flow, debt, use of IPO proceeds (which is rarely highlighted meaningfully), controlling shareholders and the amount of stock being sold by existing owners.

They should also compare the IPO valuation against listed peers.

Most importantly, investors should ask a simple question: Am I being offered sufficient upside for the risks I am taking, especially since an IPO prospectus is an invitation to invest, not a guarantee of profit?

With so many of 2026’s SGX IPOs currently underwater, the lesson is straightforward: When enthusiasm is running high and markets are setting records, retail investors should resist the fear of missing out (Fomo) and look before leaping.