Should I buy Shein shares after the IPO?

Jesse Williamson looks at whether Shein shares could be a good investment with an IPO imminent.

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London may be getting its most exciting new listing in a long time. After facing regulatory hurdles in its attempt to list its initial public offering (IPO) in New York, Shein is stepping up its preparations for a London listing. The China-based fast-fashion company was valued at $66bn (£52bn) in a fundraising last year.

Is this one for investors to pay attention to?

A change for London

In September last year, the LSE lost out on the IPO for Cambridge-based Arm Holdings, which sought a higher valuation on the Nasdaq. More recently, betting firm Flutter ditched its primary London listing in favour of the NYSE.

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The track record for big names has been poor in London. Maybe Shein might be the trend-changer going forward.

At the most recent valuation, Shein would place itself as the 12th largest company in the FTSE 100. This would be a major win for the LSE, finally attracting one of the big names over its counterparts across the pond.

Regulations

Regulations were the main hurdle in Shein’s attempt to list in New York. Geopolitical tensions between China and the US proved too hard to overcome.

Now in London, the company faces more issues. Three parliamentary committee chairs have pressed for more scrutiny of the company, and also insisted that the listing should not go ahead while parliament is dissolved for the general election.

Why the scrutiny?

Well, there are ESG concerns about Shein’s labour policies in China, the poor working standards, as well as intellectual property theft accusations.

Although the listing would be good for London’s image, this may be a listing that comes with as many problems as it does solutions for the IPO market.

The company itself

Shein will want to establish itself as a global player rather than just a Chinese company selling inexpensive clothing internationally. Also note that there are not many apparel companies with a valuation near $66bn. Shein has a big valuation with a lot of problems.

In 2023, the company made $32.5bn in revenue and $2bn in net income. So, with roughly a price to sales ratio of 2, Shein is in line with peers such as Next and TJX Companies.

My view

Will I be buying shares if the IPO goes through in London? No. This is a name that I will let pass me by.

A good move for the LSE, perhaps, but not for my portfolio.

There is something that doesn’t sit right with me knowing that a company faces large ESG issues and is present in my portfolio. The financial industry is putting more and more pressure on this metric. I can only see this risk decreasing the valuation of shares as time goes on.

In a crowded apparel market, there is a risk that Shein may lack a sustainable competitive advantage over its rivals. It is a brand built from offering very low prices. However, the fast-fashion industry typically has low profit margins. Competing primarily on price could further reduce those margins.

But there may be an even bigger investment opportunity that’s caught my eye:

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jesse Williamson does not own shares in any company mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

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