Every so often I like to take a look to see how investments in initial public offerings (IPOs) would have fared.
On this occasion, I'm going to take a look at electronic design software company Altium Limited (ASX: ALU).
When did Altium launch its IPO?
You might be surprised to learn that Altium isn't a new listing and has actually been trading on the Australian share market for over two decades.
In fact, Altium wasn't even known as Altium when it first landed on the ASX boards. In August 1999, it listed on the share market as Protel Systems, raising $30 million at $2.00 per share.
By many measures, the Altium/Protel IPO was a huge flop and a series of failures led to the Altium share price falling very heavily over the first couple of years.
So much so, the Altium share price at one stage dropped as low as 9 cents in 2011. That represents a 95.5% decline from its IPO price.
But anyone that stuck with the company through its hard times certainly has been rewarded today.
Thanks to a series of successful acquisitions that have transformed the company into the leading player in the industry, the Altium share price is now fetching $35.40.
This means that if you had invested $10,000 into the Altium IPO in 1999, you would have received 5,000 shares. These shares would now have a market value of $177,000.
In addition to this, in FY 2021 the company is forecast to pay shareholders dividends of 40 cents per share. Which means that those 5,000 shares would generate dividends of $2,000. This represents a yield on cost of 20%.
But perhaps the best thing is the company's outlook. Due to the Internet of Things and artificial intelligence markets driving strong demand for its services, I believe Altium is well-positioned to generate very strong returns for investors over the next 20 years.
Combined with the power of compounding, I suspect these 5,000 shares will be worth significantly more than $177,000 in 2030 and 2040.
Foolish Takeaway.
The Altium IPO has proven to be a very successful one, but it did go through a number of ups and (mostly) downs before getting there.
I believe this demonstrates both the risks and rewards of investing in IPOs. Things have worked out for Altium and its shareholders, but it could have been a very different story if it were not for its game-changing acquisitions.
In light of this, I think investors looking to invest in IPOs should consider companies which are already positioned for long term growth and won't require acquisitions to get them there.
