Reasons for Shift in Stock Price

This analysis focuses on two companies which performed very differently in the market once they traded for the first time in the London stock exchange. It highlights how the company stock performed on the first day after their respective IPOs were issued to the public.

Running Head: Reason for Shift in Stock Price 1
Reasons for Shift in Stock Price
Name
Affiliated Institute
Date

Reasons for Shift in Stock Price 2
Reasons for Shift in Stock Price
Underpricing is a finance term used to describe a situation where a company prices its
shares too low for an initial public offer (Abidin, Reddy & Zhu, 2012). This analysis focuses on
two companies which performed very differently in the market once they traded for the first time
in the London stock exchange. It highlights how the company stock performed on the first day
after their respective IPOs were issued to the public. The analysis also explains the reason for the
stock price fluctuation using underpricing theory, the characteristics of the company, and other
factors that might have contributed to the fluctuation of prices.
Mind Gym is a company that deals with behavioral science. It is a global company
contracted by other companies to help increase workers output through their own proprietary
products. Mind Gym IPO was launched on 28th June 2018 at 8 am with an immediate rise in its
share price ("Mind Gym PLC - Admission to AIM and First Day of Dealings - Proactive
investors (UK)", 2019). The initial offer was 146 pence per share for 35 million shares. The
share price climbed by 25 percent to trade at 182.5 pence by 4 p.m. on the same day (Howard,
2019). The data and line chart below shows the movement of the share price when trades were
active.
8 a.m. 10 a.m. 12 p.m. 2 p.m. 4 p.m.
146p 165p 175p 177p 182.5p

Reasons for Shift in Stock Price 3
8AM 10AM 12PM 2PM 4PM
143
148
153
158
163
168
173
178
183
146
165.2
175 177
182.5
Mind GYM PLC
As of June 28 2018 4p.m
Aston Martin, on the other hand, had a drop in share price when the company first traded
in the market. It is a luxury carmaker with a presence in the global market. The IPO was issued
on October 3rd 2018 at £19 per share but the price dropped once the trading began. It dropped by
as low as 4.7 percent and finally closing at £18.1 ("Bloomberg - Are you a robot?", 2019) . The
data and line chart below highlights how the stock price fluctuated when trades were active.
8 a.m. 10 a.m. 12 p.m. 2 p.m. 4 p.m.
£19 £18.5 £17.75 £17.79 £18.1
8AM 10AM 12PM 2PM 4PM
17
17.5
18
18.5
19
19.5
AML
As of October 3 2018 4pm

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IPO Underpricing Theory
Adverse Selection Theory
This theory focuses on the two main types of investors. Those who know the true value
of a company, and those who invest with the hope of getting profits by investing with the hope
the stock will perform well (Leite, 2007). Mindy Gym and Aston Martin both had a fixed supply
of common stock which implies the fluctuation in stock prices was due to fluctuation in demand
for the stock in the market. For Mindy Gym the underpricing of the stock worked perfectly. The
uninformed investors were induced to participate and thereby raising the demand for the issues.
The informed investors also knew the actual prices of the stock and also participated in the
purchase of the stock. This is clearly indicated by the 25 percent increase in share price.
Aston Martin was faced with the challenge of convincing the uninformed investors. Days
before the IPO, investors, and analysts questioned the comparison of Aston Martin to Ferrari
which is considered to be a bigger sports car company and subsequently earns more profit
compared to Aston Martin. This debate made the uninformed investors to question the share
price and eventually, most of these investors opted not to buy the share. The reduced demand for
the stock made the share price to drop.
Analysis of the Company’s Past Performance
One of the main factors that contributed to the success of Mindy Gym IPO was the profit
margin it recorded and the growth rate the company is experiencing. They have a profit rise from
£4.8 million to £7.8 million with 12 months and boast of a client increase including FTSE 100
companies. They also have clients listed on S&P 100 that have enlisted their services (Howard,
2019). The company is still growing and profits are on the rise. The other factor that has

Reasons for Shift in Stock Price 5
contributed to the success of the company is the use of proprietary products to deliver business
improvement solutions to large organizations. There is low competition in the industry of
behavioral science. Mindy Gym is the first behavioral science company to be listed in the
London stock exchange.
Aston Martin’s main market share is the UK market followed closely by the European
Union (EU). Investors fear for investing in a British company as they prepare to leave EU. Amid
all the assurances from the company, It is very uncertain how Aston Martin’s market share will
be after the move is finalized (Jackson, 2018). This greatly reduced investor confidence in a
company heavily invested in the EU and UK markets. It is global markets, but these two markets
constitute 55 percent of its market share. This was the main issue. Looking at the company’s
revenue generation, it increased by 8 percent in the first half of 2018 and recorded a pre-tax
profit increase of 2.8 percent ("AML profits grows”, 2019). Competition in the sports car
industry is very high which greatly affected investors decisions considering Britain is making
very crucial economic decisions that might greatly affect the company.
Usage of IPO proceeds
Aston Martin generated £4 billion from the IPO which it will invest in supplying new
products in the market. As stated earlier, the sports car industry is very competitive. To keep up
sales, companies have to constantly come up with new ideas to outsmart the market. The
company had a very valid reason that could have attracted customers but they did not attain their
target to generate £5 billion. They lost only £1 billion which was mainly because investors who
had confidence in the company saw they had a valid reason for going public and this investment
would generate them money ("AML profits grows”, 2019).

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Mind Gym aim is development. They want to expand their operations and ability to work
with more large companies. The company is also considering to partnerships that would increase
its market share by increasing the number of companies they offer services to. As an investor, the
main goal is to make a financial decision that will keep on generating revenue. Mind Gym
offered investors the best reason to buy their ordinary shares by offering such a good
development strategy before the IPO was launched (“Mind Group annual report 2018: accounts
report", 2019). This increased the demand for their shares altogether. Mind Gym’s plan is to
lead in the development of physiological tools that will make it marketable to new clients.

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References
Abidin, S., Reddy, K., & Zhu, Y. (2012). What Causes the Underpricing of IPOs and the Long-
Run Performance of Stocks?. SSRN Electronic Journal. doi: 10.2139/ssrn.2139126
Aston Martin profits grows. (2019). Retrieved from
http://www2.astonmartin.com/live/news/2018/02/26/aston-martin-profits-grow-by-
quarter-of-a-billion-pounds-in-record-full-year-performance
Bloomberg - Are you a robot?. (2019). Retrieved from
https://www.bloomberg.com/news/articles/2018-10-02/aston-martin-is-said-set-to-price-
ipo-at-19-pounds-per-share
Howard, T. (2019). Mind Gym shares climb 25% on AIM debut. Retrieved from
https://www.proactiveinvestors.co.uk/companies/news/199782/mind-gym-shares-climb-
25-on-aim-debut-199782.html
Jackson, O. (2018). ‘Tricky’IPO market impacted by price volatility. International Financial
Law Review.
Leite, T. (2007). Adverse Selection, Public Information, and Underpricing in IPOs. SSRN
Electronic Journal. doi: 10.2139/ssrn.498325
Mind Group annual report 2018: accounts statement. (2019). Focus On Catalysts, 2019(2), 4-5.
doi: 10.1016/s1351-4180(12)70020-x
Mind Gym PLC - Admission to AIM and First Day of Dealings - Proactiveinvestors (UK).
(2019). Retrieved from https://www.proactiveinvestors.co.uk/LON:MIND/Mind-Gym-
PLC/rns/LSE20180628070009_13696594.