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Should I buy Moonpig shares this week following the IPO?

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Moonpig (LSE:MOON) is a well-known online personalised greetings card retailer. It has expanded into flowers and other personal gifting, but remains best known for the cards arm of the business. It had operated as a private limited company for many years, but went public yesterday via an initial public offering (IPO). The IPO put a value of £1.2bn on the company, and Moonpig shares rose as high as 29% in early trading. I can buy it for my ISA from Friday onwards. So is it worth me jumping on the bandwagon at the end of the week?

What do I know?

One of the issues with buying a company when it has just had an IPO is the lack of transparency. Listed firms need to give regular trading updates to shareholders and have greater transparency requirements. This makes it easier for me to research and judge if I should invest or not. For Moonpig, I don’t have that much information to go on.

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Looking at the latest results I have access to, I can see why Moonpig shares rallied first thing. In the full-year results to April 2020, revenue was up 44% to £173m. In fact, revenue has grown at an average rate of 13% per year for the past few years. Such continued growth is harder to achieve as the company gets larger, so the 44% figure is very exciting to see.

I don’t have much information on how the company has coped with Covid-19, but the optimism around the IPO leads me to conclude that the business isn’t struggling. This makes sense when you consider the business model. The online presence of Moonpig means no retail shop overheads and no physical stores it had to shut during lockdowns Also, cards and parcel orders have been on the increase since Covid-19 hit.

These fundamental reasons are why I think Moonpig shares started life strongly yesterday.

What’s the risks of buying Moonpig shares?

There are risks, of course. One of the biggest is simply buying just as the shares are listed. This is a time when things are very choppy. The founders usually sell some of their shares in this period. This is offset by investors like me and institutional investors buying shares. So naturally the share price is quite volatile to begin with. This choppiness can lead to large short-term swings, something I need to be aware of with Moonpig shares.

Further, the valuation of Moonpig is only an estimate, and could be overhyped. In this case, the market will naturally fall to a level that most people think is fair. For example, take Aston Martin Lagonda. The IPO price was set at £19, and the share is now trading at just £2.20 only a few years later. I don’t think this will happen to Moonpig, but again it’s a risk.

From my point of view, I do think that Moonpig could be a good buy due to the sustainable business model and lack of physical cost bases. It’s got a proven track record over several decades. But I’m going to sit out the initial choppy IPO period and wait for a month or so before looking to buy.

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jonathansmith1 has no position in any of the shares 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.

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