Media complicit in IPO hypes

Time and again one reads headlines such as this one: 'Burger chain gears up for $568 Mio. float'. This one is from CityAM and refers to the planned IPO of another Burger Chain. Apart from the question of how many such chains the world really needs - and the question of the benefit of eating too much meat, especially red meat - one has to wonder why the reporters do not take the trouble to look more closely at the purported 'valuation' that is implied by such a headline.
It is quite understandable that the lucky few among the original promoters behind the business and their (well-paid 'advisers') would put such a 'valuation' into circulation. This is known as 'anchoring' and is a well-known trick used by any wily negotiator. But by repeating this number without any proper analysis of its merits the commentariat is making itself complicit in giving this 'valuation' the appearance of correctness.
Looking behind the scenes in this particular case should give any experienced investor who is not just a momentum player or index hugger pause for thought.
Shake Shack had total revenues of just $ 82 Mio in the nine months to September 2014 (up from 58 Mio in the year ago). Net income was a grand total of $3.5 Mio (4.9 Mio) and Net Equity was a less-than-impressive $14 Mio. All that from 53 shacks (33 a year ago).
Now there have been some hefty valuations in the fast-food business during the recent past and Chipotle Mexican Grill (ticker CMG) continues to trade at vertigo-inducing levels. This may or may not be the correct 'valuation' for a fast food chain. History will sort this out.
But it would be only good journalism if news items about new share issues would be treated as more than just re-hashed publicity items. Much emphasis is being put by policy wonks on the importance of fostering wider share ownership as part-solution for the evolving retirement crisis many baby boomers and succeeding generations will face. Giving them 'access' to new issues trading at stratospheric levels will only benefit the (early?) retirement of the 1% - or even only the 0.01%.

Are IPO's more than Get-Rich Scheme for the Promoters?

Looking at valuations imputed by the pricing of new issues one can only wonder if saving to invest in Equities can really ever provide a solution to the looming retirement crisis or the widening wealth gap between the rich and the rest of the population. What is really sad is the willingness of the media to be nothing but a marketing platform for the promoters of new issues. Case in point: The listing of Fever-Tree, a producer of drinks. This company sports a turnover of £28 million on an annualised basis but the IPO values the company at £154 million. This may or may not be the right valuation for this company (the backers had even hoped for £200 million!) but it is beyond me why respectable publications abstain from giving an opinion on the merits of this valuation. If anything, that is the most important piece of information that readers would deserve to find. More than 5 times revenues needs more justification than a homely write-up about how the founders started the business.