On a day where the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) crumbled nearly 2.2%, not even the newly listed Myob Group Ltd (ASX: MYO) could avoid the carnage.
After having opened at a 7% premium to its initial public offering (IPO) price on Monday, the stock hit a high of $3.92 but has since retreated considerably. It fell 3.9% on Wednesday, setting a new low of $3.69, which is slightly higher than the $3.65 price tag at which initial investors were sold their shares.
Indeed, most stocks would be expected to trade in the red on a turbulent day like today, but a 3.9% fall for the newly listed entity is a worry. Many analysts expressed their concerns at the agreed upon IPO price, suggesting that the price was too high considering the solid competition MYOB was pitted against.
Personally, I thought even $3 could be too much to pay for the business. While MYOB is an established player in the accounting software arena, there are strong signs that suggest its New Zealand-based rival, XERO FPO NZ (ASX: XRO), is taking leaps and bounds to become the superior provider.
While Xero is solely focused on cloud-based accounting systems, MYOB has based its growth strategy around its ability to convert its current desktop-based users (these customers do not currently pay ongoing fees) into paying cloud-based customers. Many of these customers are likely to instead migrate towards Xero's or other rivals' systems which could impact MYOB's long-term growth prospects.
There is no denying that MYOB is a high-quality corporation, but at its current price tag, it seems an expensive investment prospect. While investors were no doubt ecstatic to see their shares open at such a high premium on Monday, reality could soon kick in should today's fall be the beginning of a longer-term trend.
