Retail Investors Show More Appetite For Deliveroo

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Retail Investors Show More Appetite For Deliveroo
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Retail investors show more appetite for Deliveroo PLC (LON:ROO) as they get a first bite of trading action

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Deliveroo Shares Gained 4% Before Falling Back

Retail investors don’t appear to have lost their appetite for Deliveroo despite the severe bout of indigestion suffered by the company when institutional investors began trading last week.

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And by the end of the day yesterday, shares were down by 28% from the IPO price, but this morning a surge of interest from retail investors, who could buy in for the first time saw the company gain 4% before falling back slightly.

This will be some comfort for Deliveroo customers who were encouraged to buy a slice of the company but appeared to have thrown the dice on a disastrous debut. Like a fateful round of Monopoly they were locked out of selling their shares for a week, while the company’s initial valuation fell sharply. Now they finally have a ‘get out of jail’ card, but it seems for now that many have kept it in their back pocket, waiting it out for prices to stabilise. Total market trading volumes are pretty much unchanged from yesterday.

A volatile trading period following an IPO isn’t unusual and we would always encourage investors to have a long term strategy, and not invest in shares for speculative short term gain. However, it is clear that IPOs should offer a much more level playing field from day one for all classes of investors.

The Benefits Of A Regular Retail Offering

Although opening up IPOs to more than institutional investors is welcome, a regular retail offering usually offers a better solution, allowing retail investors to begin trading from day one, via their stocks and shares accounts.

More accurate pricing is also crucial to maintain retail investors enthusiasm for IPOs going forward.  The offering, at £3.90 a share, gave Deliveroo a valuation of around £7.6 billion, sharply above its valuation of around £5 billion in January following an investment round, yet there had been no fundamental improvements to its prospects. Instead the floatation came at a time of increasing concerns surrounding its gig economy model and the expectation that the easing of Covid restrictions could lead to an initial downturn in business.

However, the shift to online ordering is unlikely to fully unravel and Deliveroo’s positioning as a service for premium restaurant brands could still give it the edge over some of its bitter rivals. Its foray into the grocery business could also help it prove more resilient, but questions remain about whether the company will be forced to make changes to its contractor model in the future and the extent to which that would affect its profitability prospects.

Article by Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown


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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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