A lot of investors get excited about trading new stocks listed through the “Initial Public Offering” process (IPO). But finding the available float of a newly traded stock is not always easy. After all, there are no 10-K or 10-Q reports that we can look to for information. Fortunately, companies that go public are required to register their shares with the Securities & Exchange Commission (SEC) through the use of a Form S-1. Let’s go through a few recent IPO’s and determine the float to see how the numbers compare to what we find on FloatChecker.
- Why Does a Company Go Public?
- Important Filings in the IPO Process
- Shuttle Pharmaceuticals Holdings, Inc. (SHPH)
- bioAffinity Technologies, Inc. (BIAF)
- GigaCloud Technology Inc. (GCT)
Why Does a Company Go Public?
Taking a company public is known to be a long and arduous process. Even when the process is complete, the company will forever be subject to endless rules and regulations. So why do it? Simple – money! Public listing is very lucrative and allows founders to profit from their preliminary investments. It also allows a company to offer stock-based compensation to retain employees, raise money to expand operations or acquire other companies, and gain access to the equity markets for future capital needs. Other reasons can include publicity and brand visibility. Regardless of the rationale, money is usually the motivating factor.
Important Filings in the IPO Process
A company will typically hire underwriters, lawyers and other experts to prepare the necessary documentation to file with the SEC. All of this work will eventually be compiled in the S-1 registration form, which is the primary document a company needs to file in order to sell shares to the public. Companies based in the U.S. may be eligible to use the more simplified S-3 form. Foreign companies will register their shares using the F-1 form. You’ll often see the S-1 amended multiple times (as a S-1/A) up to the day the stock actually begins trading on one of the exchanges, such as the NASDAQ or NYSE. Once the SEC issues its “Notice of Effectiveness” the S-1 process is considered complete. Before that, any number of changes can be made through amended filings.
The S-1 itself is considered incredibly important for investors, but it can also be incredibly difficult to read. If you ever looked through one, it can look like a financial statement, sales presentation, and scary risk lecture all wrapped up into one document. And while no two S-1 forms will look the same, they all should have a few things in common for our purposes. We’ll look for a summary page that states the number of outstanding shares that will be available after the offering and we’ll look for a table or listing of the principal shareholders at the time of the IPO. When a company first goes public, a large amount of shares will be held by founders, executives, officers, and other early investors. It is very common for an IPO to include a “lock-up” period where these principal holders agree not to sell any shares for a certain amount of time, typically 6 months to one year. As a result, these shares are basically “untradeable” at the time of the IPO and can be subtracted from the outstanding shares to get an idea of the float. Let’s look through some recent IPO’s below and see if we can quickly calculate the float.
Shuttle Pharmaceuticals Holdings, Inc. (SHPH)
Shuttle Pharmaceuticals Holdings, Inc. is a biotech company that began trading on the NASDAQ on August 31, 2022. The price of the shares more than tripled in the first two days of trading. Around that time, FloatChecker showed the stock information as follows:
If you scanned the latest substantive S-1/A filing on August 25, 2022, you would see in the “Offering Summary” that the company stated it would have 13,283,377 shares of common stock outstanding immediately after the IPO offering. We would thus expect the actual float available for trading to be at least below that number.
Next, we’ll look at the table of “Principal Stockholders” to see a list of the beneficial owners and their holdings.
If you search for the term “lock-up” you’ll see that holders of 1% or more of the stock have agreed not to sell for 6 months while officers, directors and other significant owners have agreed not to sell for one year. We’ll then assume that the shares listed on the Principal Stockholders table are not eligible for trading at the current time and subtract them from the outstanding shares. Totaling that number gives us a float of approximately 4,756,412 shares (13,283,377 – 8,526,965). That number is similar to what Morningstar reported around the time of the IPO and at least gives us an idea of the float when many of the financial outlets followed by FloatChecker have yet to report any data beyond the outstanding shares.
bioAffinity Technologies, Inc. (BIAF)
BIAF is another biotech company and it began trading on the NASDAQ on September 1, 2022. The stock price more than doubled on its first day of trading but eventually settled back down. FloatChecker showed the following information for the stock:
The final S-1/A before the IPO, dated August 18, 2022, is a bit difficult to read. A search for principal stockholders shows the company would have 2,727,583 shares outstanding after the offering.
Looking at the figure above, a larger number of shares are held by beneficial owners and other principal holders. If you read further through the notes to the filing, there is some confusing discussion about the different types of shares owned by the different individuals and entities. But to keep things simple, we can look to the right of the table and get a sense of the overall percentage of stock owned by this group – which is about 84% of the outstanding shares or 2,291,170. And because that amount is subject to a 6-month lock-up period, we can subtract it to estimate a float of approximately 436,413 shares (2,727,583 – 2,291,170). The data reported by FloatChecker is quite varied but overall supports a fairly low float.
GigaCloud Technology Inc. (GCT)
GigaCloud Technology is a Chinese software company that began trading on the NASDAQ on August 18, 2022. The share price tripled in value over its first three days of trading. As a foreign IPO, the company filed Forms F-1 and F-1/A instead of the S-1 Form. Around the time of trading, FloatChecker reported the following:
GCT had a number of F-1 amendments before the SEC issued its Notice of Effectiveness before the day of listing. To simplify, we’ll look through the prospectus that was filed on August 19, 2022. The “Offering Summary” states that 30,916,814 outstanding shares will be available after the IPO. The summary also indicates that existing owners have agreed to a lock-up period of 6 months where they won’t sell any shares.
Looking at the shareholders table, it is not exactly clear how the shares are split up among Directors and Executive Officers and Principal Shareholders. As a result, we’ll total the percentage of beneficial ownership by the principal shareholders (83.5%) and subtract that from the outstanding shares. That would give us an approximate float of 5,101,274 shares (30,916,814 – 25,815,540), which is higher than the early numbers reported by at least Yahoo Finance and Finviz.
When a stock is first listed for trading on the day of its IPO, the different financial sites across the internet may not yet have calculated the float. And there won’t be many publicly available documents available to help you figure out the share information. But by scanning the Form S-1 or F-1 and their amendments, you may be able to get an estimate of the available shares for trading. While it may not be perfect, some quick research may be enough to assist you with your investment decisions.