I don’t invest in new stock market initial public offerings (IPOs) or flotations. They’re priced to raise the most cash for the company, not to provide me with a bargain buy. That’s why I didn’t buy Ocado (LSE: OCDO) shares when they floated back in July 2010, at 180p per share.
I soon felt smug about my decision. That’s because a little more than a year later, the price was down 70%. But had I invested £10,000 at the outset and held until today, I’d have quadrupled my money. I’d now be sitting on a tidy £40,000.
The story is actually even more remarkable than that. When the Covid pandemic arrived, Ocado went through the roof. Online shopping was suddenly all that mattered, and Ocado had the technology to transform the world.
Ocado shares reached a peak in September 2020 of 2,914p. Anyone who bought at flotation and managed to sell at that precise point would have snagged a 16-bagger. And those unlucky to have been buying at that point have since suffered a 75% loss.
Change strategy?
So I’ve missed out on a tasty quadruple. But does that mean I’m going to abandon my policy of not buying at IPO? Well, I think I’d be silly to decide anything on seeing just a single success. So let’s turn to another big UK stock market flotation of recent years, Aston Martin Lagonda (LSE: AML).
Something similar happened in the early days there too. The stock hit the market at the end of September 2018, with a list price of £19 per share. And it soon started falling.
But this time, I didn’t miss out on a longer term multi-bagger. Had I invested my £10,000 in Aston Martin back then and held on, it would now be worth… wait for it… only around £950.
Growth investing
Still, these two IPO stocks together reveal an interesting growth share lesson. Many investors, including me, are wary of buying growth shares in their early days. We’re put off by the booms and busts we’ve seen over the years.
But what if I’d split my £10,000, and put £5,000 into each of these two stocks when they first came to market? I know they’re quite a few years apart, but they’ll serve as an illustration.
My £5,000 in Aston Martin would now be worth only £475. But the other five grand that went into Ocado would have grown to £20,000. I’d still have more than doubled my money (just) by investing in one big winner, and one massive loser. So maybe investors don’t need many big winners to succeed in multi-bagger growth investing?
Ocado now
It’s still not for me though. But what about Ocado now? In its January full-year 2022 trading update, the company said it expects to come close to EBITDA break-even. If we’re finally approaching profitability, it should be easier to work out a share valuation.
If it then looks like good long-term value, I might buy. Results are due on 28 February, and I’ll be watching closely.
