Afya Could Slide Further When IPO Lockup Expires

When the 180-day lockup period for Afya Ltd. (AFYA) ends on January 15, 2020, pre-IPO shareholders and company insiders will be able to sell more than 13 million currently-restricted shares in the secondary market. With just 13.7 million shares trading pursuant to the IPO, any significant sales could flood the secondary market and cause a sharp, short-term downturn in share price.

(Source: S-1/A)

Trading in AFYA has been mixed during this six-month period. The stock had a first day return of 26.8%. The shares climbed to a high of $32.32 on August 27, but then began a sharp decline reaching $21.90 on August 30. Currently, the stock trades between $27 and $28, a 43.9% return from IPO.

We believe that despite mixed trading, many of the pre-IPO shareholders and company insiders will be eager to cash in on some of their gains when the IPO lockup expires. Aggressive, risk-tolerant investors should consider shorting shares of AFYA before the company's lockup expiration on January 15th.

Business Overview: Medical Education Group in Brazil

Afya Ltd. is the top medical education organization based in Brazil through December 2018 based on the number of medical school seats available. In its SEC filings, the organization describes itself as an end-to-end ecosystem designed to educate physicians and take them from education to residency preparation, graduation, and ongoing education requirements. The company uses interactive learning, integrated content, and adaptive experiences to encourage continuing education in the medical field. Through technology and its educational content, Afya offers personalized education that parallels one-to-one tutoring.

(Source: Afya website)

Afya has undergraduate and graduate programs across 12 states in Brazil. Its digital platform offers education across Brazil. As of March 31, 2019, Afya operates a network of 14 undergraduate and graduate campuses comprised of nine operating units versus five operating units in March 2018 and four operating units in December 2017. As of March 2019, they offered 1,167 medical school seats comprised of 917 operating seats and 250 approved seats. (Operating seats have been approved by the Brazilian Ministry of Education. Approved seats have approval by the Ministry of Education; however, they have not begun operations.) After acquisitions in Q2 of 2019, Afya has a total of 1,352 medical school seats and 16 operating campuses. Afya intends to expand to 23 campuses. In addition, Afya offers health care education programs in biomedicine, nutrition, physiotherapy, physical education, pharmacy, psychology, radiology, nursing, and dentistry. The company also offers degrees in pedagogy, industrial engineering, civil engineering, physical education, law, accounting, and business administration.

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Disclosure: I am short AFYA.

Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any ...

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