Stock markets are, in the end, a place where companies get financed. True, the modern trend seems to be toward more VC backing in the early stages, a stock market float or IPO being how they get out of their positions but the same base idea applies. Stock markets are a part of business funding.
This does not though mean that every company that comes to market is of great benefit to shareholders who invest in that float or IPO. This year in London providing some good examples of this.
Deliveroo PLC (LON: ROO) is one good example, it has lost some third of its value since the float back in March. There are two major reasons for this hit – or two excuses that can be given if we prefer. The first is that Deliveroo – as with every other gig economy company – has been hit by changes in employment law. The initial assumption that all could just be independent contractors, with no employment rights, holiday pay, national insurance to pay (and the employers’ share there is 13.8%, a significant bill) is being progressively whittled away by the courts. The delivery folk at Deliveroo are increasingly being classified as workers – with some of those rights – and in some places as employees, with all those expensive rights.
The other Deliveroo problem is that the company was a bet, in a sense, upon lockdown habits persisting. We’d all continue to order food in as we had done. And we have, to some extent, but not as much as some were thinking we would. So, as lockdown habits have unravelled that market isn’t as large as was once thought.
Oxford Cannabinoid Tech Hldgs PLC (LON: OCTP) may well be backed by Snoop Dog but that doesn’t seem to have aided the business all that much however much it aided the flotation itself. The OCT share price is down 45% since the flotation in May. Here the difficulty seems to be that drugs derived from cannabis were a fashion, now they’re not so much. On the basis that the bit that humans actually like about cannabis is the high, the one thing that the company isn’t really pursuing.
Parsley Box PLC (LON: MEAL) is, as floats for 2021 go, the dog of the year though. 82% down from that initial price of 185p and there’s concern that the company will need a refinancing soon enough. Delivering ready meals might well be running into the same problems Deliveroo has had – lockdown habits not being maintained.
The point here though is not to recommend, or even to condemn, the specific companies. Rather, to point out that the stock market really is a place where ideas get financed. The thing about ideas is that not all of them succeed. Even, if it were easy to grow a business then we’d all be self-made millionaires already. Investing in new floats, therefore, carries more risk than investing in the market as a whole. There have been some marked successes among the new floats as well which does balance matters. But IPOs and new flotations are not guaranteed successes and they require more vigilance, not less
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .
Tim Worstall is a freelance writer specialising in economics and the financial markets.