Tomorrow at 11:59pm, applications will close for a stake in the highly anticipated Medibank Private initial public offer (IPO). Indeed, it's shaping up to be the largest float since that of Telstra Corporation Ltd (ASX: TLS), and thousands of investors and institutions will be eager to get their hands on a small slice of the pie.
But then there are those other investors, like myself, who decided to sit this one out. Many will have been deterred by the high price while others might lack the necessary faith in the business' ability to reduce costs and achieve more competitive margins.
If you're one of the investors who have decided to give the Medibank IPO a miss…
There's a good chance you'll be thanking yourself later.
Sure, you might miss out on an initial 'stag profit', as highlighted by my colleague Tim McArthur, but you could also save yourself from years of underperformance should the investment go wrong.
Just because it's a sale of a government business doesn't necessarily mean that it will follow the likes of Commonwealth Bank of Australia (ASX: CBA) or CSL Limited (ASX: CSL). Just look at Qantas Airways Limited (ASX: QAN), which has been a serial underperformer for investors.
I'm certainly not confident that the insurer will be able to justify its seemingly lofty valuation. Should it open at the high end of its indicative price range, at roughly $2.00, the shares will be trading on a projected P/E ratio of 21.3 times earnings which, in my opinion, is too high for a good but by no means spectacular business.
That's not to say I won't ever buy a stake in the company. I'd certainly be interested if, at some point after the initial hype dies down, the shares declined in price. But right now, I'm far more interested in exploring a number of other stocks which I believe are posing as far greater bang for my buck.
For instance, three companies that I'm looking at instead are Cover-More Group Ltd (ASX: CVO), Slater & Gordon Limited (ASX: SGH) and Coca-Cola Amatil Ltd (ASX: CCL) – the latter of which I already own a parcel of shares in. All of these companies are attractively priced and could deliver excellent returns over the coming years.
