What the Virgin Australia IPO could mean for investors

The return of Virgin Australia to the ASX is one of the most anticipated IPOs of 2025.

With Bain Capital reducing its stake and Qatar Airways retaining its significant shareholding, Virgin is set to list at $2.90 per share, valuing the company at $2.32 billion. But should you jump on board?

Historically, IPOs offer a poor risk-reward ratio. Our data suggests that 50% of IPOs trade lower within their first year.

Virgin's own track record isn't encouraging. When it originally listed in December 2003 at $2.06, the stock plummeted 40% by 2005.

It briefly recovered to around 10% of its original value by 2007 before crashing more than 90% and being delisted in 2020. If you had analysed a chart back then, the red flags were evident, underscoring the importance of technical analysis in avoiding poorly performing stocks.

This is why we emphasise chart analysis when teaching our students to trade. A minimum of five years of data is crucial for understanding market sentiment and price movements.

IPOs, by their very nature, lack historical data, leaving investors to speculate rather than analyse. While Virgin's prior performance in the market offers some hindsight, a strong performance in this new iteration is far from guaranteed.

It's worth noting, however, that Virgin has made significant strides since its collapse during the pandemic, reporting profits in FY2023 and FY2024.

Its streamlined operations and partnership with Qatar Airways may offer a more sustainable business model. However, the airline industry is inherently volatile, and Virgin's competitive position relative to Qantas remains challenging.

For those considering investing, I recommend waiting for confirmation rather than speculating on the IPO. Allow the stock to establish a trading history before making a move.

This way, you can analyse its behaviour and assess whether it aligns with your investment strategy. History has shown that patience pays off when it comes to IPOs.

That said, Virgin's return to the ASX is a positive sign for the Australian market, signalling renewed investor confidence.

While I'll sit this one out, I'm keen to see how Virgin performs and whether it can defy its historical trends. For now, I'll stick to analysing charts over betting on an IPO.

What were the best and worst-performing sectors last week?

The best-performing sectors include Financials, up more than 2% followed by Information Technology and Real Estate up more than 1%.

The worst performers include Healthcare and Utilities, down under 1% followed by Consumer Staples, which is just in the green.

The best performing stocks in the ASX top 100 include Lynas Rare Earths, up more than 17% followed by IGO, up more than 11% and James Hardy up more than 10%.

The worst-performing stocks include IDP Education, down more than 50% followed by Light and Wonder, down more than 7% and A2 Milk down more than 3%.

What's next for the Australian stock market?

The All-Ordinaries Index extended its winning streak with another strong performance this week, gaining slightly more than 1%.

The rally was driven by gains in the financial and energy sectors, with materials also contributing. Having our largest sectors, financials and materials, moving higher together only adds to the bullish sentiment in the market.

What stands out is the market's resilience despite mixed economic signals. Reports of Australia entering another per capita recession and the prospect of more interest rate cuts might seem like reasons for caution.

However, while rate cuts typically support the market, they also hint at deeper economic challenges.

This week's clean break above 8600 marked a pivotal shift for the index.

What was once a major barrier has now turned into a crucial support level. With the market sitting just 1.2% below its pre-Trump tariff all-time high, it highlights one of the sharpest and most remarkable recoveries on record.

To put it in perspective, the market has climbed more than 19% in just two months, which is a staggering turnaround compared to the average annual return of 13% since 1900, according to Market Index.

With such a sharp ascent, the risk of a pullback is rising. Whether the market pauses just shy of its all-time high or breaks through first, a short-term correction could be on the cards.

Markets often take a breather after a strong run, and a period of consolidation might set the stage for the next move higher. For those that have been waiting on the sidelines, a pullback could present more favourable opportunities in the weeks ahead.

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