Their revenues and profits may also be quite mature and easy to predict, and the value of future cash flows therefore more easy to determine.

With new listings on the ASX, there is less of a consensus on the relative value of a firm. As such, once the firm starts trading, we can see large movements either way as traders and investors reach an early equilibrium price.

However, these initial moves are not necessarily a reflection of the future cash flow prospects of the business. Rather, they reflect the immediate sentiment of the company, but also the industry in which they operate.

In fact, the industry and sector of a new ASX-listed issue appears to be one of the deciding factors in the early performance of the share price. The more in vogue the sector, the better the performance.

In the first half of 2017, the medicinal cannabis sector was perhaps the most fashionable sector, with four of the top 10 performing IPOs of 1H2017 having links to the sector; perhaps indicating the positive sentiment and bullish view on the sector from investors.

The weakest performing sectors for 2017 IPOs include the telecommunications and real estate sectors, which is perhaps also indicative of the sentiment investors have for these sectors.

There is an admittedly small sample size for IPOs in these sectors this year, but those that have listed have perhaps been influenced by recent weakness in Telstra (our largest listed telecom), and the growing belief that our property market may be peaking.

These is a quote from a very famous historic investor that reads “In the short run, the market is a voting machine, but in the long run it is a weighing machine”. Therefore, whilst popular firms and sectors may do incredibly well in early trade, this isn’t necessarily a reflection over the long-term prospects and valuation of the business.

Indeed, the longer-term performance of any business is less down to the near-term sentiment and popularity of the business, and more down to their ability to generate revenues, manage costs, and deliver profits.

Sam Green is adviser at OzFinancial