Time to get excited about IPOs again after Adairs Ltd jumps on debut?

Companies trying to float on the ASX will find some relief from the strong jump in Adairs Ltd (ASX:ADH).

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There will be several investment bankers breathing a sigh of relief as Adairs Ltd (ASX:ADH) trades above its initial public offer price during lunch time trade.

The homeware company made its market debut at noon and is trading at $2.67, which is an 11.3% gain over its float price.

These are nervous times for those trying to float new companies as investors' appetites for these investments have been waning.

Sentiment towards initial public offers (IPO) took a marked turn for the worst after insurance reseller Greenstone was forced to cancel its $900 million listing after it failed to get an acceptable price for its stock.

Greenstone would have been this year's biggest float and the poor performance of other high profile IPOs like MYOB Group Ltd (ASX: MYO) has left an unpleasant taste in shareholders' mouths.

The waning Australian dollar is also making would-be foreign investors think twice about putting money into our market, which is one of the worst performers among our developed peers.

If you were hoping Adairs will change the mood, you might be disappointed as I do not think it will change sentiment much.

The success of the float is probably more to do with the company being in the right place at the right time.

Those that are leveraged to the booming housing market are in demand. Look at one of last year's hottest floats, Beacon Lighting Group Ltd (ASX: BLX).

The light fixtures and accessories retailer has seen its share price surge nearly three-fold from its IPO price to trade at $1.87. This puts the stock on a 2015-16 forecast price-earnings (P/E) multiple of around 22x.

Adairs is a "bargain" in comparison as it is currently trading on a pro forma P/E of around 18x and a yield of 3.5%.

That may not look expensive but it is certainly no bargain either and companies that aren't operating in a sweet spot will have to leave a lot more on the table if they want to garner investor support.

I would generally stay away from IPOs as the recent market correction has left many time-tested stocks trading at (or are close to) attractive valuations.

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Motley Fool contributor Brendon Lau has no position in any stocks mentioned. Follow me on Twitter - https://twitter.com/brenlau The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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