How to select stocks that have surged? Focus on three key dimensions!

For investing in Stocks, stock picking is the most important aspect, and the same applies to new share offerings. High-quality newly listed Stocks can easily multiply several times when the market is strong.

As of June 17, 2025, there were a total of 15 newly listed Stocks in the second quarter of 2025, of which 11 closed higher on the first day, and 9 had an increase of over 20% on their first day. $DUALITYBIO-B(09606.HK)$ The first-day increase even reached as high as 116.7%. However, during the same period, there were also 4 newly listed Stocks that fell below their issue price on the first day, with some experiencing declines of over 30%.

It has been proven that investing in new shares is not a guaranteed way to make money; choosing poor-quality new Stocks may lead to losses.

Next, we will enter a "new share intensive period", currently there are new shares being offered for subscription. $ZHOU LIU FU(06168.HK)$ $ETERNAL BEAUTY(06883.HK)$ $CAOCAO INC(02643.HK)$ $XJ ELECTRICS(02619.HK)$ $SAINT BELLA(02508.HK)$ With limited funds, how can one select new stocks with great potential for significant gains while avoiding stocks that have fallen below their issue price? We will explore this from three dimensions: company fundamentals, company valuation, and market sentiment.

How to pick new stocks based on fundamentals?

First, let’s look at how to select stocks through company fundamentals, which is also the most important stock selection logic. The fundamentals of most outstanding new stocks can be summarized in one sentence: high-growth leaders in high-growth Industries.

This fundamental stock selection framework includes four dimensions:

The first dimension is that the company operates in a high-growth Industry. This means the company should be in a sunrise Industry with a large space, low penetration rate, and expectations for rapid growth.

The second dimension is that the company is an industry leader. Being able to reach the position of an industry leader in a sunrise Industry means the company has a significant competitive advantage, which is a prerequisite for becoming an excellent company. The higher the company's market share, the better; ideally, it should have a substantial gap with the second place in the Industry, even forming a monopoly or oligopoly competitive landscape.

The third dimension is that the company itself is high-growth. As an industry leader, the company's performance growth rate should be faster than the average growth rate of the Industry; otherwise, it is a pseudo-leader with limited potential. Specifically, if the company is losing money, its revenue needs to grow rapidly and the loss ratio should narrow. If the company is profitable, then the profit growth rate should be faster than the revenue growth rate; this is a more ideal state.

The fourth dimension is that the company's Business is relatively scarce. Scarce Business implies competitive barriers, making it difficult for competitors to enter. At the same time, due to insufficient competition, the company's profitability will also be quite strong, with a high gross margin. Additionally, scarce new stocks also have greater valuation elasticity, are easier to hype, and have higher expected price increases.

If one wants to provide a quantifiable strategy based on data, then new stocks that meet the following four fundamental conditions will be very excellent companies. Of course, one can also set their own criteria to filter out the ideal new stocks.

Take the example of the stock that went public at the end of 2023. $WUXI XDC(02268.HK)$ In the ADC (Antibody-Drug Conjugate) outsourcing service Industry, where it operates, the Industry growth rate has exceeded 30% over the past five years. As the absolute leader in domestic ADC outsourcing, the company has a market share of nearly 70%. The company's performance has continuously doubled, and its Net income margin is close to 20%. WuXi AppTec basically meets our criteria for selecting high-growth industry leaders for high-growth scarce stocks; thus, under the bear market environment of the Hong Kong stock market at the end of 2023, it still rose by over 35% on its first day.

Of course, there are very few new stocks that completely meet the above conditions. Even if 2-3 conditions are met, new stocks with decent overall quality can still be potential picks. For example, the star new stock of 2024 mentioned earlier, Laopu Gold, although in the Gold retail Industry with a generally average growth outlook, and the company is not an industry leader, its performance growth and profitability are both in the first tier of the Industry, plus its listing valuation is relatively low, resulting in its post-listing performance exceeding many people's expectations.

It is important to note that the above-listed Algo stock selection criteria are not set in stone, and they should not be used as investment references. The newly mentioned stocks are only examples and not investment advice. New stocks selected in this manner are also at risk of falling below their issue prices. A comprehensive choice must be made in conjunction with the stock's valuation and market sentiment.

How to select new stocks from a valuation perspective.

Next, let's look at how to select stocks from a valuation dimension. There are mainly three methods for valuing a company.

The first method is the PE valuation method, suitable for companies with relatively stable profits. Its calculation method is PE = Market Cap / Net income. This is also the most commonly used valuation method in IPOs, especially during bear markets or the early stages of bull markets.

The second method is the PS valuation method, suitable for growth companies that currently have no stable profits. Its calculation method is PS = Market Cap / Revenue. Generally, such companies are still in the storytelling phase, with high investment uncertainty, and they are only sought after in bull markets with high risk sentiment. In bear market environments, companies in the loss phase are rarely able to perform well. For example, at the peak of the bull market in early 2021, Kuaishou, which had significant losses, rose by up to two times, while the recently listed leading computing chip company Horizon once experienced a drop below its issue price after listing.

The third method is the PB valuation method, suitable for asset-heavy companies. Its calculation method is PB = Market Cap / Assets. However, the outstanding new stocks we are referring to basically do not belong to the asset-heavy category, so this third method is difficult to apply.

For a fundamentally excellent new stock, after calculating its valuation using the applicable valuation method, it can be compared with companies in the same Industry or of the same type. Generally speaking, many Institutions will allocate excellent new stocks, and their valuations will be somewhat higher than the average industry valuation. However, if it is more than 30% higher, it may be overvalued. Conversely, it could be reasonably valued or undervalued.

How to gauge market sentiment toward new stocks?

Finally, let's take a look at how to select stocks from the perspective of market sentiment.

Market sentiment represents the trend of the new stock market; good market sentiment indicates a bull market, while poor sentiment indicates a bear market. It can be said that market sentiment is a magnifying glass for the performance of new stocks on their first day of listing.

Specifically, the assessment of market sentiment mainly looks at two dimensions.

The first dimension is the overall market trend of Hong Kong stocks. If the market trend is strong, market sentiment will also warm up, leading to higher expectations for the performance of new stocks.

The second dimension is the recent performance of new stocks. New stocks themselves also have cycles; if newly listed stocks perform well, the sentiment for new stock registrations will be relatively high, amplifying their debut performance. Conversely, if the new stock market is quiet, it will also put pressure on their performance.

Since 2025, as the Hong Kong stock market steadily recovers and the A+H share listing wave arrives, more and more quality companies are listing in Hong Kong. The hot new stocks are frequently oversubscribed by more than five hundred times and even a thousand times, which also indicates that the overall new stock market is in an optimistic and heated sentiment.

In summary, when selecting stocks for new stock registrations in the Hong Kong market, the most important point is to choose companies with excellent fundamentals, preferably leading companies with high growth in high-growth Industries. This is the prerequisite. Generally speaking, new stocks with strong fundamentals are also unlikely to perform poorly upon listing. Based on this, the valuation of new stocks should be evaluated, combined with the market sentiment at the time of their listing, to make a decision on whether to subscribe.

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