She's On The Money - Hot Shares or Hot Mess? Finding Real IPO Opportunities

Episode Date: November 12, 2024

Ever wondered if IPO shares are your ticket to fast-track wealth? Today, we’re cutting through the hype to get to the truth about Initial Public Offerings, from how they work to whether buying shares early really pays off. Victoria’s got practical tips on what to look for before you invest, and Bec’s asking all the questions you’ve been dying to know. Get ready to make smart, confident moves with our guide to buying IPO shares—without falling for the hype Acknowledgement of Country By Natarsha Bamblett aka Queen Acknowledgements. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.  Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708,  AFSL - 451289.See omnystudio.com/listener for privacy information.

Hello, my name is Natasha Nabanunga-Bamblett. I'm a proud Yorta Yorta, Kurni, Wolperi and Awadjuri woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on Awadjuri country, acknowledging the elders, the ancestors and the next generation coming through. As this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow. Let's get into it. She's on the money. She's on the money.

Hello and welcome to She's on the Money, the podcast that demystifies the world of finance so you can make smart money moves. No finance degree or secret decodering required. I still want a decoder ring. Yeah, me too, actually. I'm Bec Syed, and as always, I'm here to ask all the questions you've been too shy to ask or don't actually know how to Google. I'm not shy to Google things. I'm not shy to Google things.

I'm shy to show you my Google history. Ah, of course. I'm not shy to look it up, though. I'll look it up. But if you got hold of my phone, if something really bad happened to me, Bec, and you somehow have hold of my phone, just wipe it. Wipe it for me. I'm going to look at it first.

You can look. You can look. I trust you to look. Okay, and then I'll wipe it. Nobody else can see. It's safe with me. Sometimes I have to Google how to spell, what does this mean? Like, I just, it's a lot.

I forgot how to spell knee the other day. Yeah, look, I would too, honestly. And then I Google it. And you're like, how do I spell the word that I can't spell? Do you know how I do that? How do you do that? I voice note it. That's a good idea, actually.

That's very clever. Yeah, voice to text. Thank you. It's got me. So today we're diving into the world of IPOs. So I know IPOs kind of sounds like financial jargon. I actually don't know what it is. It is actually financial jargon.

It certainly is. But they're actually something you might come across more than you think. And understanding them can give you a big investing advantage. And also, you'll sound more like a finance bro if you start talking about IPOs at brunch. It does sound pretty cool. Yeah. So lucky for us, we've got Victoria Devine, our financial expert who knows the ins and outs of investing. I do. Hello. Thank you for having me on my own show. Very grateful to be here.

But also grateful that you're letting me talk about IPOs. I'm really glad we're talking about it. Oh, you really twisted my arm with this one. Yeah, you were like, what? And I was like, oh, sit down. This is going to be a juicy one. But also one that makes us feel smarter at the same time as going, finance isn't that complicated. I feel like so many of these jargony terms just make us feel overwhelmed. And then when you break them down, you're like, that's not that hard. The finance bros be bro-ing. They be bro-ing.

They be bro-ing. So IPOs are actually one of the most common questions we have been getting recently from our listeners. Yeah. I think it's because lots have been in the media. So people are like, what is that? Why is it in the media? What does that mean? And everyone wants to know if they're a chance of getting in early on the next big thing, right? Or if it's more of a gamble. And honestly, there's a bit of both going on. So today I'm going to break down exactly what IPOs really mean, why companies go public and what investors need to look out for when those exciting new shares hit the market. Okay. Okay. Okay. I think it's going to be really fun. I mean, you're not sold yet. Not yet, but I actually don't know what it is. And so that's,

I think my first question will be what actually does it mean? Like what is an IPO? So an IPO means initial public offering, which sounds really boring, but it's essentially like the company's first time on the share market. It's when a private business decides, you know what, we're a pretty good business and we would like to sell shares to the public. And it's often to raise money so that they can grow, but it's not just like a money move. It changes the whole company's structure and their goals because they have a whole heap of other responsibilities. So like if I said, oh, Bec, I'm going to sell shares in She's on the Money instead of me just being in control, I now have shareholders to report to. I'm going to have like a board who

I have to justify my decisions to. It's not a small decision by any stretch for the imagination, but essentially IPO is the first time a company debuts on the share market. And so that's, I'm assuming just based off what you said, it's kind of their decision. So why do some companies decide to IPO? Is that the right, am I saying that right? Yeah, you can say that. Yeah. Why does some companies decide to list themselves on the share market? Why to IPO and why to not IPO? To IPO or to not IPO? That is the question. That's the question. But companies often decide to go, all right, we're going to list on the share market and have an IPO to raise really big funds really quickly,

especially if they're like expanding or the company carries some debt that they want to pay off. But there's also, I guess, the flip side. When you go on the share market, when you decide to list publicly, companies lose a little bit of control, which is why some people are really happy to stay private. And it's one of those things where even if my business has got absolutely massive, I like not having other people tell me what to do. I don't want to have to talk to shareholders and justify the decisions I make inside my business. So it's not for me. Like going public is a really big shift. It means that the company is now accountable to shareholders and has to produce finance reports and post them publicly. And there's pressure to meet

earning expectations, which I guess can then change how they're going to internally run the business as well. Like no longer can you just make decisions. Right. Okay. So in my head, I'm thinking a company that maybe like a little small business maybe they're getting big enough they need more money they need extra funds maybe they even need like publicity to some extent exactly and then so they decide to go yeah and I think using she's on the money as an example of this throughout this episode is going to really help right so like let's pretend that I'm thinking about listing I'm not but let's pretend I'm thinking about listing and it's because Beck I really want She's On The Money to grow even bigger than it is and I want to create an app

and like I want a She's On The Money app because you know one and we all know this already one doesn't exist in the market but it costs hundreds of thousands of dollars to create an app and keep it updated like it's not for me being completely transparent it's not feasible for me to do that on my own so maybe in order to do that and actually create this app that I want to that in the back of my mind, I go, if I create this app, the She's On The Money community will like triple and will, you know, gain a whole heap more revenue. I'm going to list, which means I'm going to do what's called an IPO, which is the initial public offering. And that's the first time I'm issuing shares. And everyone wants to get in on a good thing. Like, Bec, I think you love She's

On The Money. So you might go far out Brussels sprout. I love what V's up to. I love She's On The Money. I would love to get in on this because I reckon her shares have been valued at X, but it's worth more. So you go and buy a few of the she's on the money shares. And then you go when she finally does this app that I know she's been talking about, my shares are going to be worth so much more because I believe in the company. And that's often what people want to do when they have an initial public offering. They go, oh, that's the first time that that company is listing. And irrespective of what the company is, you might go, I really believe in what they're doing. And I'm hoping that when they're listing, that's like the first time price and it's not an all

time high price. Like you were assuming that often when you get involved in an IPO, you get to purchase first, but it means that you might be getting a really good deal because then the market is ultimately going to start seeing what you're seeing in She's On The Money. Does that make sense? Yes, totally. So like you and I know She's On The Money and it's a little bit niche, like it's a finance podcast, not many people know about it. So like you can see the value. But if I went to Joe Blow down the street and said, hey, would you buy She's On The Money shares? Joe Blow might be like, I don't even know who she's on the money is. And then you'd be like, oh, it's Victoria Devine. And then they'd be like, I've literally never heard of this person, but you should buy

shares. It's got so much potential. He's going to go, I don't see the value. So often an IPO, and I mean, it can go one of two ways. So an IPO, often they'll release shares and then over time, they increase in value and you've got a good deal when you got in at the start. Or there was a whole heap of market hype and you got in at the start and then your share price started to drop. So that's why we're talking about it kind of being a risk at the same time as being a really good opportunity if you know what you're talking about. Okay, this actually makes a lot of sense.

I guess I wonder if you're about to go public or if a company is about to go public and you've kind of had your eye on it, where do you actually find out? Like where is this information? Can you just like Google that company? You can, you can. There will often be a lot of like PR releases and media releases. you'll also learn about it from the ASX. So the ASX is the Australian Stock Exchange and

their website has a whole heap of information. Like I'm telling you right now, if a company is going to go through an IPO process, they are jumping up and down and trying to let everybody know about it because everybody wants a good IPO, right? It's kind of like a launch party. I like see it as a launch party, right? Like I want to have a launch party for my really fancy business. If no one shows up, low-key embarrassing. You want a Corey Worthington launch. Yes, yes. We want a Corey Worthington launch. So we want everyone to want yellow sunglasses. Yeah.

And we want everyone to buy because that gives the rest of the market confidence. Because if they haven't seen our company, they haven't seen She's On The Money, they don't know what it's about. And then they see the IPO and it's gone hectic. You'd be like, oh my God, maybe I'm missing out on something. Because at the end of the day, the share market is inherently psychological, right like and you and I as investors we like seeing other people get in on a good thing and then go oh hold on what are they doing that looks good so you want to create that sense of FOMO with an IPO like they're going to be jumping up and down about it yeah okay that's good to know maybe I'll have a browse because I assume that even if you're not fully looking at one place

like I don't know where to start but I could just kind of have a browse in there and see what's absolutely and like your favorite companies if they're planning on launching they will start talking about it and prepping for it because you have to change your entire business structure and like the way you report things and the things that go on in the business. It takes literally like 18 months to prep a business for launch. So there'll be probably whispers at the start about it. And then once they have a lot of confidence that they have a date and they're ready, they'll talk about it. It's kind of like a book launch. Okay. Actually sounds like it's quite a big process. It's actually a bit, it's a massive process. Like, as I said, it can take,

you know, 18 months just to prep a company to go into their IPO because they're launching. And obviously, if you're going to buy a share in my company, Bec, you're going to go, well, I want to make sure that you've got everything organized. I'm not going to buy a share in your company if you're running a circus behind the scenes. There's obviously the financial prep. There's going to be audits. And then there's a really big, I get excited about this document. It's called a prospectus. You probably don't care about it, Bec. Prospectus. prospectus. It sounds bougie, right? Yeah. But it's essentially a really big document that outlines

everything about the company. It has all of the financials. It has all of the risks, all of the goals of the launch, what they want to achieve, what their company structure looks like, who works for them. And during this process, you can't just do it on your own, right? So they'll often hire underwriters who are going to help set the share price and attract investors. Because if you ask me while she's on the money's work, I'll be like $1 million, $1 billion. Like I'm going to tell you it's worth heaps, but we need to actually hire someone called an underwriter. You might not have heard of the term underwriter, but an underwriter assesses risk. So insurance companies usually have them. And these are the people that if you go through the insurance process and say, oh,

I really want to get income protection. What will happen is your financial advisor will apply to the insurance company and the underwriters will view your application, assess what type of risk you have, and then put a number on that and go, oh, well, you know, Beck loves a vape. So she's probably a little bit more of a risk than the average bear. So we might add a little bit of a loading, which is a little bit more money that you pay per month to cover yourself, right? So what happens in the space of shares is an underwriter will look at it, review the company and give a suggestion as to what the share price should be. Like, should it be a dollar per share?

Should it be $500 per share? You can't just ask the company, oh, how much money did you want to sell shares for? Like, that's not how it works. It is actually a really long, really extensive process, but when it's done correctly, it can really pay off. Does it cost a lot of money? Oh, yeah, absolutely.

Like, an auditor just doesn't come in and says, oh, yeah, I'll do you a solid and, like, we'll just do this for free. Like, underwriters are very, very educated. like they have to go through so much university and be really technical. They're not just looking at that prospectus document. They're looking at, you know, the market. They're looking at what the economic circumstances are. They're looking at, you know, the demand for the product into the future. They'll do a whole like SWOT analysis. They'll look at your strengths, your weaknesses, your opportunities and your threats. They'll look at all your competitors and like try and place you

if that makes sense. It's a lot. I wouldn't, I'd be too fragile for that process. I love reading the documents though, Bec. It's so, I don't know, it's like, it's pervy because you get all the information about a company that's previously been private. Like, don't you want to like, I'm so pervy. I want to know what other people are earning and spending and like, oh, what debt do they carry? Why did they take on that debt? I need to know. Just a bit of light reading. Yeah, just grab a prospectus and a glass of wine and you got a good Friday night. Oh, it sounds like heaven for you and hell for me, maybe.

Maybe I'll read it to you. You can sit on the couch with your little soda water and I'll be like, Bec, get this. And you'll be like, I don't care. Maybe a bedtime story. Yeah, maybe we can have Netflix on and I'll read it while we watch Netflix. That sounds actually like a nice try. But I'm doing the work so that I can then explain it to you

and you'll be like, I don't even need to read it because you did the hard work. I really appreciate that. You're welcome. Don't say I don't do anything for you. So just in case someone's listening to this and they're like, this is a foolproof way to make money fast. I'm assuming there's a bit more to it. Is that right?

Yeah. As I said before, like it could be a really, really good thing or it could be a flop. Like we've all seen launch parties where it's like, oh, that's nice. They're finally launching and that's terrible. Like, you know what I mean? Like it's like a book launch, right? And I've said this literally in this episode before. So what could happen is like so much hype, so much marketing, the cover of the book, so incredible. and then you get the book and you're like this is terribly written like this is just not for me like finally the launch party happens you bought the book back you were like this $29 book worth it and you're like I would not pay $10 for this what have I done no pictures in here no there's no pictures no drawings like what is this and there's like more than 100 pages ew no so just because a company goes public doesn't mean it's gonna like skyrocket like you do your initial launch, which is the IPO, but then you've got to kind of sustain the business. You can't just sell shares for an inflated amount and then expect the market to not see through that if it's a sham,

if that makes sense. So in fact, some IPOs flop literally right after they're listed. Like any investment, it carries risk and we need to be on top of that risk and kind of weigh it up, right? And this goes back to she's on the money. And it's not because I think the business is good, is just a good example. You know, she's on the money so deeply, right? So like, you know, the team, you know how it works. You have this prime position. Like you're kind of in the, like the director's box of being like, I actually know their ethics. I actually know who works for them, how they even edit their podcasts. I know, you know, in the pipeline, like, you know, what's going on in 2025 and probably 2026. Like you've seen our business plan. Yeah. So you're

like, no, that's pretty solid. Like I'm pretty bought into this. Like I know that's pretty good, but not everyone has that director's seat, right? And sometimes companies can put out this shiny version and you might feel like you've had a director's seat, but it was a really curated version. Another example is kind of like brand new restaurant opening night. So excited. It's just opened in your area, Bec. Like let's imagine pizza shop down from your house. You haven't had a restaurant there ever and you're just so stoked that a restaurant is opening your house. They have cheap wine. You're just like, oh my God, this is going to be the perfect date location for Jess and I. I love it. There's long wait lists. So you're like, oh, this is popular. Good sign. Love seeing

a buzzing environment. You're so excited, but you're not really sure yet. Like what if you don't like the menu? Some opening nights, there's everyone lining up around the corner. And then the night after they'd given everyone food poisoning. And then you went and had a really shitty time. The waitstaff were really rude. You know, you're paying 48 bucks for a margarita pizza. You're like, oh, actually, this was all really good when I saw them building the locations. When I started marketing, I thought this is going to be lit. I went. I never want to go back there again. Yeah. I had a crap time. I'd actually prefer to just order Domino's online and just sit at home. Do you know what I mean? Like that is what could happen. So like some are an absolute

hit and some are a miss, that might mean that the company has to then go back to scratch and kind of go, all right, well, we need to have a look at our business model. And maybe they like drop the prices of their pizza, fire some staff and hire some kind ones and the whole situation changes. And maybe then it becomes your local, but they have to prove themselves. You can't just do a fancy IPO and be bougie. Yes. Does that make sense? Totally makes sense. I imagine if you are in that situation it's hard to come back from negative than it is from yeah exactly and if an IPO happens like if a company has an IPO and it flops back media love that yeah like they want to talk about that they want to be like oh my god did you see Victoria's company IPO'd it launched

at like 60 bucks a share and the next day it was 10 dollars a share like they're gonna slam that because the investment news or like the investment news cycle they love a negative story or they love Do you want to be like, oh, yes, Victoria's launch happened and she sold her shares for $60 per share. And look at that overnight. They are now at $61. That is solid and consistent growth. We love to see it. No one cares.

But if it crashes, you love it. Like everyone wants to watch. Juicy, juicy, juicy. That is fun. We need the juice. And I get it. That's why I exist. I love a little bit of drama, but I also need to balance it out with reality.

And that's why it's so important to always kind of have your blinkers on when you're making a decision about investment for yourself, because you need to make a decision that's right for you, not what the market is saying. Yeah. Really good example of that, Bitcoin and cryptocurrency. Yeah. So everybody in the market and everyone in the media was talking about how incredible Bitcoin was and how incredible crypto was.

And it was the next big thing. And people who'd never even invested on the share market were going and purchasing crypto assets because their friends were. They had a little bit of FOMO. They thought that everybody else was on to a good thing, but what they were hearing was market noise. Yeah. Did that make the actual asset that they were purchasing more valuable?

No. The price was actually driven by the demand as opposed to the value of the product. Right. So people wanting it more meant if more people are buying it, the share price goes up. And that's really exciting if you can back yourself. But then the share price crashes because people go, hold on, hold on.

I paid 80 bucks a share for X. I don't think it's worth it. Do you know what I'll do? I don't think it's worth it. So I'm going to sell my share at 80 bucks today because I just want to cut my losses. I want my money back. And so the market starts to see these shares selling and your share price starts to drop because there's not as much demand for it. And then you see your share price dropping and you go, oh my God, I bought in at $80 too. Now it's worth $70. Should I just cut my losses and sell right now? And because you didn't have a commitment to that product, because you didn't have a commitment to that share and fully understand it, you're like, oh, I just want to cut my losses, you know? Whereas it might be a really great opportunity,

but if a lot of people are selling down, you might want to get on that train too. So we need to put blinkers on and not look at what other people are doing and look at what works for you. So I guess this entire model means you need to have your head screwed on properly. You can't just get excited because it's an IPO and it's super shiny and they're obviously going to get a whole heap of market press. They're obviously like the Today Show wants to interview them. It might be a skincare company and they've just done this incredible skincare range and they're finally taking it public. That's a good news story. So you see it and you get in on the hype, but I guess you need to understand that the hype is just hype and you need to analyze it yourself

to make sure it's a good decision so that it doesn't end up being a bad money loss. you know? Yes. So after the break, we're going to go to a quick break there because I've been talking about IPOs and I need to calm down a little bit. I'm going to give you the inside scoop on spotting the real opportunities and what's just smoke and mirrors, because I've told you to look out for it. But how? How do I see? How do I see? So stick around. You don't want to miss this. Welcome back, everyone. Before the break, you promised us all the hot tips for investing in IPOs. So where should we start? Do you get it now though? Like before we go, like IPOs, do they feel as overwhelming as they did at the start of the episode? Because you're

like, I don't know what an IPO is. And I'm like, I am glad you were here then. Yeah, totally. And I just like, when you see the abbreviation of anything, it's like, that is scary. I don't want to know. But it really is making sense. But also like, it's just the first time a share is available on the market. Yeah. And I think a lot of people, again, the finance bros be bro-ing. Investing in IPOs is my passion. Okay, sit down, bro.

God, they got me good. They got you, but like also, that's why we don't like finance bros. That's true. So let's go back to basics. I want you to understand the business model. If it comes to, you know, understanding, I guess, whether you should invest in a company's IPO or not, we really want to just like strip it back and have a look at the business model.

How does the company make money? What does it sell? what does the company actually do? Whether it's in a growth industry or not, you want to understand a solid business model is going to have long-term potential as opposed to something really short term. And to me, that's essential before considering an IPO investment. Why, Bec? Because I am not the type of person who buys like penny stocks. I'm not the type of person who is in it to get rich quick. That is not my game. I'm a long-term investor. So if you've got a short-term business model, how's that going to fit into your long-term portfolio? How are you going to hold

that for 10 plus years? If you wouldn't hold a share for more than 10 years, Bec, you should not hold it for 10 minutes. But you shouldn't. You shouldn't because why are we buying it? Because if you're buying it for a short period of time, you are probably just buying it because of market hype. You're probably buying it because you see a little opportunity to get rich quick. That's not who we are. That's not what we do. We are long-term investors because that is the safest way to invest. And we know, and I'm probably getting a little bit off track here, but we know that if you took any 30-year period in the Australian stock market history, Bec, and anyone who was invested for that period has not lost money. Whoa.

Invested for a shorter period, like 10 years, yeah, the markets go up and down. You can sell out and lose some money. But if you stretch it out and go to 30 years, nobody in the Australian share market has lost money over a 30-year period. But isn't that really cool to think, okay, cool, if I zoom out, and we always say when in doubt, zoom out, but if I zoom out and look at the bigger picture, an IPO is shiny. It's really exciting. I love it. And I get so enamored. I am going to read that prospectus. I get it. But I'm reading it because I think and I'm hoping that I'll get in to a good thing at the start and be able to ride the wave for a 10 year plus period of time. I'm not trying to ride the wave for five minutes because it launched and then I'm going to

sell my shares. That's not who I am. Back to the prospectus though, I can't talk about this enough. It's going to sound really unsexy and I don't think I sold you on it before. I told you you could watch Netflix, but it's really important if you're actually going to make the investment to read the prospectus. That document, it's going to reveal, usually in quite simple terms, financials, the business risk, what their future plans are going to look like. What I would be doing is spending some time here to understand exactly why you're buying into it and questioning yourself the entire time being like, am I just buying into this IPO because it sounds shiny? Am I buying into it because another podcast talked about it? Am I buying

into it because my friend at brunch said, oh my gosh, there's this really cool IPO going on and I'm interested too. You need to understand exactly what you're buying into and any risks that might actually not be immediately obvious. Okay. We're going to critically think about this. And I just have a quick question. You are allowed many questions and they do not have to be quick. Thank you. I don't know why I'm so obsessed with the actual logistics of this, but the prospectus is publicly available and it's on, would you find ASX or on the website of the company? Both, both.

We're going to spam it everywhere because we want everybody to read our prospectus and think this company is lit, I'm going to invest. So like the ASX is going to list their prospectus, but also the company is going to be like, hey, did you see this? Did you see my prospectus? They're going to put it on their website. Like this isn't a gatekeepy kind of document where they're like,

oh, I hope no one reads this. Like they're putting their best foot forward in this document. It's kind of like a pitch. Yeah. Like it's not a pitch, but like it's kind of like them saying, hey, here's why we're listing. Because if you're listing for no good reason, why are you doing that? You're not going to make money. And can anyone read this or does it have to be translated by like? No, no, no, no. Anyone will be able to read it. I mean, you might not fully

comprehend the balance sheets in it. You might be like, oh, I don't really understand what this means. That's why you should have done my investing masterclass because I would have taught you exactly how to read a business P&L and, you know, a cash flow statement and all of that. But that's okay, but you're going to have a look at it. And there will be usually summaries of what each of those things mean. Like, oh, great. This cashflow statement shows that this business has been functioning with positive cashflow for the last four years or whatever it means. So it's going to outline it, whether it outlines all of the risks, maybe like sometimes maybe yes, sometimes maybe no. That's where you have to put your like critical analysis hat on and go, hold on. Like,

let's zoom out let's say it's like a skincare brand you need to zoom out and be like oh is this an oversaturated market like how well can a skincare company do in this market like what do all my friends and family do like you're thinking about it from a lens that you know the company's not going to write about I see very cheeky isn't it well cheeky but like that's the game yeah that's the name of the game okay so I've read the prospectus and I know what I'm doing how do I now know that the price that's been set is a good price it's a hard question to answer but picture this right maybe like you're shopping for a bag beck so you're like in the market and you're like i really want a nice backpack like i want it to fit this and that right but then you start looking

into it and there's one on tiktok and it's probably the same quality but every single tiktoker that you follow is currently using this bag and like you start to feel influenced by them and decide I think I want that one, but it's pricier than the others. And it's pricier than the others because of the hype behind it. Like it's been like driven up, not because it's a better quality bag, not because it's actually even better, but like you've seen it everywhere. All your favorite influencers have it. Like the hype is there. IPOs can kind of be the same way. You know how I was talking about the pizza shop? Like everyone's really excited about it. Like you're driving up the hype. Then you get there and you're like, wait, this isn't like now I'm inside the shop.

it's not actually that good. Companies sometimes set a high price because of the buzz that's been generated, right? Back to our pizza shop. Like you got inside the shop and the pizzas were astronomically expensive. You were like, hold up. Like the buzz was there and I'd hoped for a different price, but the company that owns the pizza shop was like, oh my God, there are so many people interested in our pizza shop. We can charge more for the pizzas. That's why they set their price really high. You were pissed off about it. But the company saw that as an opportunity because there was so much buzz and they assumed that because the demand was there, they could absolutely charge more. But that doesn't mean $48 for a margarita pizza is worth it.

Like that doesn't mean that it is worth it to the consumer. Just because everyone's talking about it and there's buzz on the street about the new pizza shop, it doesn't mean that you're getting good value and it doesn't mean that you should be investing in it, right? Because you could have spent half the price and gotten a Domino's version and been really happy with it. To see if you're, now we're going to get a little bit technical. So if you're listening to this, honestly, you might want to listen back to this a couple of times. And this is not because I'm being super technical. It's just because like, we're going to talk about ratios and sometimes it takes a little bit, like not in a condescending way, absolutely not. But if you've never talked about

this, why would you be like, oh yes, Victoria, the price to earnings ratio absolutely makes sense in this situation. But to see if you're paying, I guess, the hypertax, you're going to check the IPO's price to earnings ratio or its price to sales ratio compared to similar companies in the same industry. So what I want to say before I explain the PE ratio is that you wouldn't use it in isolation, Bec. It's one factor, but you would make sure that you have additional context around the business before relying on the PE ratio. And when I say additional context, like you understand the market, you know what the pizza shop's about, like you're not just looking at a number and going, oh, PE ratio of X, okay, in or out. Like that's not how it works

because you might go, oh, PE ratio is down, but this makes sense because there's this much demand or that doesn't make sense because, you know, it just doesn't, right? So even though you should always use a PE ratio with additional context. I guess here are some common situations I've written down of what a high PE or a low PE means. So a high PE ratio means that the ratio is actually higher than similar shares in its industry. Not across the board, not across the entire market, but in its industry. And this means that investors actually might believe that the stock's earnings will increase. They're like, oh, this is a pretty good share. I want to get in on this. So they're paying a bit more. And this also means on the flip side that the stock might

actually be overvalued. Like you might actually be paying too much for it. I see. On the flip side, if you get a low PE ratio, that's where the ratio is lower than similar shares in the same industry. It might mean that the investors believe that the stock earning is going to decrease. Like they don't really trust it. They're like, oh, whatever. Like this isn't like a good pizza shop. I'm not that interested in buying stock. But on the flip side, it could also mean that the stock is undervalued and it's a really good opportunity for you. So a P ratio, like it's a formula of essentially taking the share price. So the price that they've listed at, let's pretend it's like $60. They're like, oh, share price is $60. So you'd take the share price of $60 and then divide

it by how much money you would earn per share. So the E is the earnings per share. So the company is profit divided by the number of shares that exist. So it's basically saying that you would, how much money are you going to make from the share? Like if they have a dividend that they would pay out, what is that? And those figures, you won't have to calculate your earnings per share because that will be public knowledge. So you just take the stock price and divide it by the earnings per share, and that will give you a PE ratio. Okay. Now give me five years to absorb that. I told you, you might want to listen to it a couple of times and it's not because I'm, you know, being smart or using terms that are complex. It's just because it's a topic that

we've never talked about before. And it's really important to understand that this is a really solid ratio in this industry. And if you can wrap your head around it, like essentially I'm saying, Bec, I need you to find two numbers and do a little calculation, which is take number A and divide it by number B and that will give you a price to earnings ratio, which will help you not make the decision for you, but it will help you make a decision. And I guess to give you some sense of what the average for the market is, because you're like, well, what happens when I get a number? Like what's high? Is it a billion? What's low? Is it negative billion? Like what does that mean? So many value investors would say, okay, the like 20 to 25 is a average PE ratio.

if it's low, it's low. If it's high, it's high. And you would go from there. These are things, and like back to, you know how we're talking at the start, you were like, oh, you can Google things. Like you could literally Google what is a good price to earnings ratio for the food and beverage industry. Like, and go from there. If we're talking about the pizza shop, right? You could be like, well, I've calculated the PE ratio, but I don't know how to use it. Now you could look at the actual industry and then you could go and look at like, you know, the pizza shop down the road and go, well, what is their PE ratio? Because they do a boom in trade. Is that an overvalued stock? Is it undervalued? Is it on market? Should I be paying more for this IPO or for this first

time that the brand new pizza shop is offering pizza? Should I be buying in with them or am I going to look over to this other pizza shop? Because if you found that they had a PE ratio of 10, which is a low PE ratio, you might be like, well, is that because the pizza industry is undervaluing a company that's been around for a long time or is this an opportunity there or if it's overvalued is that like the most popular pizza shop in town does everybody want to be involved with that or is it overvalued or is it actually just a really good investment so we want to not just take that number and go oh yeah it was 20 so that's good we want to kind of contextualize it once we have it okay okay does that make sense it makes a lot of sense but i

just want to quickly double check with you so the way to get that number is to find the profit of the company and divide that by the number of shares available no no you're going to take how much they are going to sell their share for okay so like that's a very easy number to find so you're going to take their share price and then divide it by the earnings per share which is how much you would make from owning that share. Okay. And that's available on the prospectus? That's all available online and it should be in the prospectus. If it's not in the prospectus, you would be able to find that information via the ASX. Great. Thank you. And so price to earnings and now price to sales is different. Okay. So price to sales ratios is nice. So we've got like

price to earnings. So we're like, what are they charging? What's the PE ratio? Now we need to look price to sales and a price to sales ratio I think is quite important and I always use the two of them when I'm looking at a stock like I would never use one in isolation I always drew the two but a price to sales ratio is essentially a valuation ratio that compares a company's like share price to its income so like are they actually making enough money like not just what they're paying you which we look at in the price to earnings but like how much revenue is coming into this business. And it's usually an indicator of the value that the financial markets or like the investing market as a whole has placed on each dollar of a company's sales or revenue.

So I guess TLDR, because like I don't want to like dive too deep into it, but we can do a whole ratios podcast at some point. But the price to sales ratio shows how much investors are willing to pay per stock. Like how much are they willing to pay per dollar of sales for a stock, if that makes sense so like if they're doing like a million dollars worth of trade that will translate directly to like a dollar for dollar share price valuation yeah if that makes sense so the ps ratio ps i love you but ps ratio is calculated by dividing the stock price by the underlying company's sales per share which again will be accessible you don't need to do all of these calculations in the background to then get this calculation this information is available but you

do have to kind of plug it in. And do you know what you can do? You can Google price to sales ratio calculator and one will come up and you can just plug it in and it will do it for you so that you know that it's correct. Right. Like lots of investing platforms have this for free. But back to what I was saying before, because we compared the low PE ratio to a high PE ratio, a low price to sales ratio could imply that like shares are currently being undervalued. And so like, that's why. You know how I said, I always do the two together. Obviously, if the PE ratio and the price to earnings ratio is saying, oh, this stock's undervalued, but then my price to sales ratio is saying it's overvalued, we need to do heaps more research back. We kind of want them

to make sense together. So a low ratio bet could essentially imply that the share is undervalued and it might be a good buy. While a ratio that's higher than average, it could actually show you that the stock is currently being overvalued. And then we're going to look at it again in context. We never just look at these ratios on their own. One of the downsides to having a PS ratio or a price to sales ratio is that it doesn't take into account whether the company makes any earnings or whether it will ever make any earnings as a whole. It depends on how you're doing it. And I mean, at the end of the day, the PS ratio is a key tool that analysts use when it comes to valuation. like it's kind of like the bread and butter in the investment market and I think it just it makes

sense that you get to understand that whether you do that or not completely up to you but my job is to give you all the tools and resources so that you could like quickly calculate something and be like oh that kind of makes sense to me and it makes you feel empowered making decisions yeah totally that felt extremely complex to me but hopefully that but if we sat down and did it a A couple of times, like the price to earnings ratio is just taking two numbers, dividing them by that. Average is 20 to 25. And then you've got a price to sales ratio. And that's going to tell you what a share is trading at per dollar. Like, and they make sense when we start to really break them down. Again, the bros have broed too hard and made us think that it is really complex,

but their jobs, they're just silly little boys. Well, that's very true. If boys can do it. Exactly. We're on the same page. We have the same algorithm, it seems. We do, it seems. Okay, so beyond the numbers, is there anything else you look at to get a read on, like, the company? What clues have you figured out there? Yeah, they've got to look cute in my portfolio.

Cute? They've got to look cute? Yeah, they've got to look cute. On the Pinterest board. Yeah, if I'm going to, like, buy into a stock, like, and you've got an ugly logo, absolutely not, no. So I think, obviously, beyond the aesthetics, which absolutely play no role in this, I'm going to look at their leadership team. Okay. I'm a creepy little stalker and you should be too, right? So like I want to look at their leadership team and what their track record is. You can go down an absolute rabbit hole,

but what you're going to do is have a look at like, who's the CEO? Who has that CEO led before? You can look at their LinkedIn. Do you know how many people I look at on LinkedIn? Like I have no shame. You know how it sometimes tells you who has seen your profile? Yeah. There will be 6 million CEOs, 6 million market analysts who all have Victoria Devine has looked at your profile. and they'll be like, why? I'm judging your business. Yeah, fair enough. I'm here. I have no shame. But you're going to look at the track record of a company because if they have a strong record of success, they might be more likely to steer the new company that they're working for in a profitable direction. Sure. And I've done this before, right? Like I was not sure about

an ETF that had just launched to market. I didn't get in on an IPO because like sometimes I'm just a little bit conservative. Like IPOs are fun. I've gotten in on IPOs before. That makes sense. But sometimes I just like to watch and I like to wait and I like to see that it does what it says it's going to do. And if it means I pay a tiny bit more for that stock, my plan is to hold it for a really long time. So with that intention, my money should double anyway. Right. So like whether I saved a little bit or not, like that's not my problem. To me, that's an investment in making sure that I'm making the right decisions for me and my portfolio. But there was an ETF, so an exchange traded fund that I was like, oh, this kind of looks interesting. It was by a good

company, but they'd never done this segment before. And so I looked at the fund manager and then I went on his LinkedIn and saw where he used to work. And then I went on his old company's page and I looked at what ETFs he used to manage there and how that worked and saw that he did a really good job and then handed over the reins to somebody to go into bigger and better things. and I'm thinking, oh, this guy knows this industry because it was one of the first ethical like portfolios that this company had done. And I was like, how do they know how to construct an ethical portfolio? Because like as much as you might think that's quite simple, it's actually quite complicated to make sure that not only are the businesses in that portfolio ethical,

but also they perform. Because like I'm not going to buy an ETF that's ethical and then be happy losing money. Like I want my investments to create wealth for me, right? So I did the biggest deep dive, this poor guy's LinkedIn, his old assistant's LinkedIn got looked at, like everyone who managed him on his manager. I was a super creepy stalker and I regret nothing because that gave me a lot of validation that that was probably an investment that I wanted to get involved in. So like if the leadership team is new, you can have a look at that. But also I want to know, had I gone and done this research back and found that this guy had never actually constructed an ETF before, He'd never picked shares out. Why would he know that? Why would he have any experience in ethical

investing? Like that would have been a red flag to me that they had just done, I guess, a tokenistic portfolio that I wasn't probably interested in. But what I found was like he had a background in ethical investing. He had put together ETFs before. He'd actually spoken at international conferences on constructing ethical portfolios. And I was like, this guy, like I back that. So we want to find good things. It's kind of like you work for a radio station, Bec. So new guy comes into the office. You're like, oh, what does he do? Like, oh, he's coming pretty top dog. You go on his LinkedIn. You see that he's worked at other radio stations and he's kind of worked his way up. You're like, oh, this guy's got some good experience. Can't wait for him to

join the team. That's what we're doing, but with our shares. Okay. That's fantastic. Super creepy stalker. We don't mind if people see that we've been on their LinkedIn, right? We don't mind. Yeah, the next thing you want to do is check for insider selling. So insider activity can, I think, be quite telling. If founders or like early investors are starting to sell really large portions of shares at the initial public offering, to me, that might signal doubt about the company's future performance. Like why is the CEO selling all of their shares once it got listed? Why are they scared?

Yeah, because often in a company, like a company might issue shares to their existing employees. Yeah. So I might go, oh, Bec, you've worked for Shiz on the Money. I'm going to give you a few shares as like, you know, part of your remuneration package. And you go, sweetly. But then we go, we're going to go to market, Bec. And you're like, thank God I've got time to get out. But I'm going to sell my shares the second it gets listed to some unknowing other person.

Yeah. Okay. But if they're holding on to their shares or even if the CEO is buying more shares, that could be a really positive sign that it's a good company and the CEO is like, I really believe in this. Yeah. Okay. That's.

Doing some creepy stalker things again. Yes. I love that. It's market research. If it is publicly accessible information, Bec, it's research. It's research. It's research. I agree.

I agree. The other thing, I've got a whole list here. I do apologize. No, please. have a look at the company's industry trends and their growth potential. So like investing in IPOs in industries with like really strong long-term growth potential, like maybe like renewable energy or like tech can be advantageous. So we're probably going to want to, and this is maybe just personal advice, avoid IPOs in sectors that have been stagnant or like overly trend dependent as

they might actually not have sustainable long-term returns. Like I don't want to get in on something that's like, it's a bit done. So I guess a good example of the, like, I'm just going to say like a Stanley cup, right? So like last year on TikTok, last even 18 months on TikTok, every man and his dog has their like Stanley drink cup, right? So I would say that that trend might be a bit done. I don't know what the long-term growth potential of a, you know, a new drink bottle company might be. I'm a little bit, you know, wary. They're not exactly, you know, a tech company or renewable energy that's going to positively contribute to our society for a long period of time. Like maybe, and I'm not saying that Stanley Cup's had its day, it's like absolutely still a

thing, but like maybe a new drink bottle company that's coming in to be their competitor, you're kind of like, oh, but people have already done that. Like, do I want to be buying that? Like, I can go get a fake Stanley Cup tomorrow from Kmart. This isn't new technology. This isn't something that I think is going to be sustainable in the long term. Right. And obviously we're not talking about Stanley specifically here because they have market share at the moment it's a new company coming in and you're like oh they're IPOing like oh I love the Stanley drink cups that makes sense but like if Kmart's doing them is it done now like is the trend over like I want sustainable long-term returns and then um reputation reputation is really important and I

mean I have been on the slam multi-level marketing companies for a really long time bandwagon and I'm just going to continue to talk about it but if you're not googling a company name and the word scam or controversy or court case like what are you doing oh my god this information is public knowledge beck yeah like you can google for example monet scam you could google monet court case and so much information would come up yeah to me if i was then going to invest in that company that might be a red flag that they have so many court cases against them, right? Is that free to do? Yes. Back to, it is simple to Google, but you just need to know what to Google. So when we're looking for reputation, obviously that's not just Googling like, you know, keywords and scam and

whatnot. Like that's just me being a little bit spicy, but like, we're going to have a look at like media coverage. Like what coverage have they gotten? Has it been positive? Has it been negative? usually now in you know 2024 there's reviews everywhere having a look at the company's reviews like what are their google reviews say we're going to also look on their instagram and their social media because often people will take to facebook or take to instagram to vent like what are the comment sections saying what are their tagged posts we're not looking at what the company's put out on their pretty little grid we're looking at what have they been tagged in what hashtags are being used like because if it's like a pizza company right you're going to go to

their Instagram. They're going to have beautiful pictures of the margarita pizza. They're going to have beautiful pictures of this happy team. And then you're going to go to tagged and there might be a post from Beck being like, look at this cockroach in my pizza. Right. Do you know what I mean? You're like, oh, that's not what you said you were. So we're going to look at the brand reputation. In a perfect world, you'll also be able to understand employee satisfaction. So websites like Glassdoor can really help you understand if the team is there. Also, again, publicly accessible information, but we are going a little bit creepy stalker. How long have their employees been there? LinkedIn will tell you that if you go to the

company's LinkedIn page and say an average tenure, it's less than a year. What's going on? Yeah. What's that? Why is everyone leaving after 12 months? What's the average tenure of their leadership team specifically? Do they get a new CEO every 18 months? What's going on here? Red flag and then understanding their company's culture and their core values. Is the company run by people who are also associated with a cult? Good thing to figure out. If it is, I'd probably be concerned. I would be. I'd be asking some questions. I would be asking some questions and being like, is this for me? Probably not. And then we're obviously going to have a look at the market conditions. So this isn't specifically for your industry or your specific share, but like

IPOs tend to perform better in stable or bullish markets. So remember back to like when I say bullish, do you know what bullish means? Bullish. I can't remember. It's aggressive. Like it's going up. Like the red flag is like flying and the bull is running for the red flag and the markets are like doing really well. And a bear, bears like to hibernate. They like to have a little nap and they're not doing much work. So a bull market is where it's doing really well and it's growing in a bear market, it's gone into a little bit of hibernation. It's just chilling. Like it's probably going to come back because, you know, it ebbs and flows. But in a bullish market, obviously an IPO is going to go better because the market sentiment and people are ready

to buy. Whereas in like a period of lull or hibernation, if I said, do you want to buy a new share? You're like, no, I might just continue napping. Like I'm not that interested. Like I'm seeing everybody else, you know, not buying. So I'm not going to buy. Does that make sense? And then in a volatile market, so in a bear market, new stocks, they can experience, I guess, really dramatic price swings. They might launch at a really high price and then go down, but that might not actually be reflective of their value. So I would weigh what the current market conditions are and go, what kind of market are we in? But also, if you are a company and you are considering IPO-ing and going onto the share market and you're like, let's do this during

economic downturn, what are you doing? That's like a really dumb decision. You're selling yourself into a period of time where people aren't that confident in investing, let alone investing in new things. Right. You want to do it in a bull's market. Yeah. So I'd be like, why are you doing it in a bear market, you potato? And how do we find out if it's a bull or bear right now? So you can just Google it. Like what's the Australian share market up to at the moment? I do a lot of obviously investing content. You can ask me. I'll talk about it. But yeah, I feel like I've yapped on and on and on about this. So Vy, I think the question on everyone's lips remains, will She's On The Money ever be the next IPO? Absolutely not. Absolutely not. Like I know that

you might want us to IPO and it would be really fancy. And I feel like this is not like a mean thing to say, but I feel like sometimes if you are a business owner, IPOing and selling shares can be quite ego driven. Sure. Like you're like, I'm listed. Like, okay, cool. Like no one gets like literally like, I don't think you're cooler because you have a company that IPO'd. I just don't like the idea that I would be responsible for shareholders. Yeah. I like that the buck stops with me and I make the decisions because like, let's be honest, a lot of the decisions that I make in my business, a company would be like, oh, I'm sorry. Like you could increase shareholder profit by not sending your team members on international conference trips. And on the

flip side, I'm like, oh, I love that I can have a business that gets to invest in the growth of my team. And that's not like the values that I hold sometimes don't align with high shareholder return. Right. Okay. Does that make sense? Yeah. And you're allowed. I could do what I want. You can do what you want. It's a free world. Including right now. I reckon let's go do what we want. Let's have a coffee. There's Diet Coke in the fridge at work now. Oh my God. I didn't know that. No, Josh hooked us up. So we've got to go get one of those. But I think before I leave you, obviously, with investment, all investments carry risk. We know that. But with the right research, I think you can pick investments that fit your goals and what you want to achieve,

not just the investments that everybody's talking about. Great call. We're going to go get a little cheeky Diet Coke. But if you've just met us and this is one of the first episodes you've listened to, please hit subscribe and join us each week as we kind of help you to get closer to financial freedom and also we're trying to make finance fun and if you want to share that money confidence with your friends please don't keep it to yourself we want a bigger better community the more people who are financially free the better beck i love that so true v diet coke time bye guys bye the advice shared on she's on the money is general in nature

and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs. Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN 321 649 27708 AFSL 451 289.