Shares of Fairway (FWM) are trading down over 50% today on news that the company was going to file a prepackaged Chapter 11 bankruptcy.  Looking at the chart now, it’s hard to imagine that just over three years ago this was one of the hottest IPOs around. For a little backstory on the company, Fairway (FWM) started out as a single store in the Upper West Side of New York decades ago.  In the late 1990s, they expanded from a single store and gradually opened additional ones in the New York City area.  During that expansion, Fairway became one of the trendiest food stores in New York, so when the company IPOd in early 2013, traders who had experienced the store themselves or heard about it through their spouses or friends couldn’t get enough of it.  Within three months of its IPO, Fairway was more than a double from its IPO price of $13.

The bloom on Fairway quickly wilted, though.   From its high of $28.87 on 7/11/13, it began its long and painful descent from there to here.  At today’s prices, it is down 99.6% from its all-time high and 99% from its IPO price of $13.  During that time, the market cap has dropped from well north of half a billion to $4 million today.

Fairway

One of the main tenets of legendary mutual fund manager Peter Lynch’s investment philosophy is that investors should only buy what they know.  In the case of Fairway, they saw a store that they either liked through first-hand experience or the rave reviews of their peers, so they went out and bought it.  What often gets lost in the discussion of Peter Lynch’s style, however, is that these first-hand experiences should only be used as a starting point.  Investors should follow up these experiences with research on potential investments through an analysis of the company’s sales, growth, and debt levels.  If traders that were so quick to buy Fairway had taken the time to look into the company’s financials, maybe they would have reached a different conclusion on the stock.

Looking at the chart above, it’s hard to imagine how anyone could have made money on Fairway Markets (FWM) since the company has gone public.  One group that made a decent amount, though, was the syndicate of banks that took the company public.  The image below is a Bloomberg snapshot of the estimated fees for the underwriters that were generated by the Fairway IPO.  While $12.45 million is a pittance by the standards of many Wall Street deals, it is nearly triple the current market cap of Fairway.

FWM IPO Fees

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