It's been just two days since the float of Medibank Private Ltd (ASX: MPL), but the market is now seeing the stock in a completely different light.
What was high anticipation and excitement just days ago has turned into anger and frustration, and a little bit of confusion too.
First of all, the shares were meant to open at around $2.30 and then climb to around $2.50 on Day One to deliver investors with a 25% or so 'stag profit'. Investors were then meant to be able to sell their stake immediately, taking home a nice one-day gain.
Unfortunately, things aren't usually that simple when it comes to investing. Instead of that ideal scenario mentioned above, the shares opened at just $2.22 and declined steadily over the course of the day. Then, they fell by 4 cents yesterday to close at just $2.10 – but not before dipping as low as $2.08.
Source: Yahoo Finance
Much lower and the Medibank float could be considered nothing more than a dud, having fooled hundreds of thousands of Australian investors along the way.
So far, it seems as though the Government has won this round…
To make matters worse, some retail investors are unable to trade their shares in the first week, leaving them stuck with a stock that is now widely considered to be overpriced. It's becoming clearer by the minute that the pre-demand for the stock was being predominantly driven by hype and the fear of missing out, as opposed to the fundamentals of investing which dictate how important 'pricing' is.
It's at this point that a reminder seems fit…
Price and value are not the same thing
As I highlighted to investors prior to the float, Medibank is a good company, but it is by no means worth the amount some investors seemed more than happy to pay. Given its sheer size, its future growth will largely come from its ability to reduce costs and improve overall margins – something that I don't expect to happen quickly.
As such, Medibank is now firmly on my watchlist, but until I'm presented with an appealing price, I'll be avoiding the stock like the plague. In the meantime, I'll continue to consider a number of other stocks that are trading at compelling prices, which I believe could deliver far greater returns than Medibank in the long run.
