We all like buying new things – phones, shoes, watches – and there is no shortage of companies selling them.
In 2019, however, the number of new companies themselves available for investors to buy into have been in short supply. In the UK, the number of companies coming to London’s main market and issuing shares to the general public for the first time is the lowest it has been for 10 years.
Why does this matter? Well, it’s nice to have a bit of new blood in the market. Many of the companies that sit in the FTSE 100, 250 and 350 have been there for years. Some of them have been there for decades.
While they might offer stability and steadiness – although age is no guarantee of income, profit or indeed sustainability – what most do not offer is growth potential.
Companies coming to the market for the first time are usually still in their growth phase.
Having been launched using the founders’ own money or a few select backers, floating on a stock exchange allows these companies to tap into a huge new pool of capital.
This new money can fund new buildings, operational change or even launch new products into new markets. It helps companies expand in a way they couldn’t if they were working off their own cash flow.
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For investors who help them to do it, by buying shares as they list, there is often a significant reward.
By the middle of October last year, the 27 companies that had listed on London’s junior market so far that year reported an average 4% share price increase.
While it is usually the largest banks and financial institutions who get the first bite of the cherry by working on the deal to get a new company to market, once the shares are issued, they are traded freely for everyone to buy. And there is still plenty of growth left – if you select your new companies carefully.
However, with the world in its current geopolitically tense state, new companies are wary about what might happen on their chosen day to list, which is the main reason why there has been so few doing it.
But, in this environment, when a new company does come to market, investors won’t miss it. The build-up will be all over the financial pages – even the front pages – as everyone likes to buy something new. This could mean growth is at even more of a premium, which is even more of an incentive to seek it out.
The ride sharing app Lyft recently floated, and with the likes of Uber, Pinterest, Slack and Airbnb set to follow this year, is it time to consider these stocks?
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