The Digicel IPO will hit the market this Thursday, Oct. 8, and it should be the largest IPO of the year so far.
According to Renaissance Capital, a manager of IPO-focused ETFs, Digicel will sell 124 million shares at a price range of $13 to $16. At the midpoint of that range, the Digicel IPO will raise $1.8 billion, and the company will have a market cap of $4.6 billion.
After it prices this Thursday, the $1.8 billion deal will outpace Tallgrass Energy GP LP’s (NYSE: TEGP) $1.2 billion deal from May and Columbia Pipeline Partners LP’s (NYSE: CPPL) $1.1 billion IPO from February.
Digicel Group Ltd. (NYSE: DCEL) is a telecommunications company providing services in Haiti, Jamaica, and Papua New Guinea. With more than 14 million subscribers, the Bermuda-based firm is one of the largest mobile service providers in the Caribbean.
The company was recently acknowledged for its philanthropy and responsible business practices. On Sept. 28, Digicel was awarded an Ethical Corp. Responsible Business Award, which celebrates companies practicing social responsibility. The company received it for rebuilding 150 Haitian schools destroyed by the country’s 2010 earthquake. The effort makes Digicel the single-largest school builder in the Caribbean.
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Despite its wholesome business practices, Digicel is far from profitable right now. The company booked $2.8 billion in revenue from March 2014 to March 2015. But in the last year, it swung from a profit of $44 million to a loss of $158 million.
The Digicel IPO is also entering a beaten-down sector. The only other communications IPO this year, Ooma Inc. (NYSE: OOMA), priced 19% below its range and is down 35.2% from its first-day close.
With the Digicel IPO just a few days away, investors are wondering if they should invest in DCEL stock when it makes its debut…
Should You Invest in the Digicel IPO?
We recommend waiting until after the Digicel IPO to consider purchasing shares of the company. That's because shares of an unprofitable company like Digicel will be boosted by hype rather than sound financials.
“Too many investors hear of a ‘hot IPO’ and try to get in on the action – without doing any homework at all,” Money Morning Defense & Tech Specialist Michael A. Robinson said in 2013. “That's a recipe for a hefty loss.”
Even when the company has tons of profit potential, retail investors are generally at a disadvantage during the IPO process.
You see, IPOs only benefit institutional investors willing to purchase large quantities of a stock before its debut. These hedge fund managers and big Wall Street banks buy in at the IPO price, which is usually much lower than the first-day opening price. If the stock jumps in its first day of trading, these big banks make an immediate profit.
That can lead retail investors to think they can capture similar profits if they jump in right away.
However, these retail investors usually can’t buy in until after the stock already surged during initial trading. At that point, you're buying in at an inflated price and missing out on the gains the wealthy Wall Street investors already snagged.
When the price falls after the initial frenzy, everyone who isn’t in the Wall Street “VIP” club will see huge losses.
But despite the unfair IPO market, there are still ways to profit from hot new stocks.
According to Money Morning Chief Investment Strategist Keith Fitz-Gerald, all you have to do is follow these three rules…
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