What Is a Hot Issue?

In finance, the term “hot issue” is used to describe an upcoming initial public offering (IPO) that is particularly popul🐲ar among theꦐ investing public.

Hot issues are typically 澳洲幸运5开奖号码历史查询:oversubscribed by investors, meaning that their demand outstrips their supply. In those instances, many 澳洲幸运5开奖号码历史查询:speculators may be attracted by the prospect of short-term speculati🐈ve gains as opposed to being convinced of the company’s long-term prospects.

How Hot Issues Work

When a company is preparing itself for an IPO, its executives and 澳洲幸运5开奖号码历史查询:investment banking partners will take the company on a so-called “roadshow”, touring several institutional investors in an attempt to promote excitement for the new issue. In some cases, such as when the company is viewed as a leader or disruptor in an exciting new industry, these roadshows occasionally suc𝓰ceed in producing widespread in♎terest in the new IPO.

Typically, investors interested in a hot issue will be split into two basic camps. In the first group are those who genuinely believe in the company’s 澳洲幸运5开奖号码历史查询:long-term potential, and wish to buy in on the ground floor. On the other hand, many investors are attracted to hot issues simply because they believe they can buy and then flip the shares for a short-term gain. This kind of speculative enthusiasm can sometimes produce 澳洲幸运5开奖号码历史查询:bubble-like conditions, so🐠metimes to the detriment of longer-term investors.

In theory, any kind of company could become a hot issue when undergoing an IPO. In practice, however, this phenomenon is typically associated with high-tech companies or those engaged in otherwise glamorous industry sectors. Established companies in 澳洲幸运5开奖号码历史查询:mature industries tend not to attract the same level of investor enthusiasm, perhaps because their business models are more stable and pr𒁃edictable than their hot issue p𒉰eers.

Real World Example of a Hot Issue

XYZ Corporation is a successful biotechnology startup that is preparing for its IPO. With the help of its investment banking partners, XYZ successfully files Form S-1 with the 澳洲幸运5开奖号码历史查询:Sec🐷urities and Exchange Commission (SEC), a necessary first step in the IPO process. Then, it proceeds to meet with a wide variety of 澳洲幸运5开奖号码历史查询:institutional investors i🦂n order to make the case for their company and justif♓y a desired IPO valuation.

If XYZ is successful in its 𝔍investor presentations, it could face a situation where its IPO is significantly oversubscribed. In this situation, its IPO would be seen as a “hot issue”, with long-term and speculative investors competing for the limited number of shares on offer.

Although the actual price of the IPO is set after the market close on the IPO date, the share price will often change significantly on the following day. In the case of hot issues, it is not uncom𝕴mon for the share price to climb significantly—sometimes by double-digit percentages in a single day. Although it is by no mea🅘ns guaranteed, this historical phenomenon has encouraged the tendency of speculators to bid up hot issue IPOs in the hopes of securing a large short-term gain.