Yes…in their never ending battle for fees, the investment banks never learn any lessons from past mistakes. I am talking about ridiculously priced IPOs where investors almost have no chance. I guess they do not remember Webvan, Pets.com or Buy.com.
This $14 IPO valued this company at about $5.5 billion. Only one problem. The company’s revenues at the time did not reach $80 million. The result: this “hot” IPO trades at $24 the opening day…closes at $18 and now trades under $4…and still has a $1.3 billion market cap. How did the boys get this one done? Two words:”social networking!”
This $16 IPO traded at $26 the first day before closing just above $17. At $16, it gave this company a $2.5 billion market cap. Only one problem. At the time, the company had only $200 million in sales and lost money. It now sits at $10.
This “hot” IPO came out at $25…traded at $42 the first day with it closing just below $39. It currently trades at $19 and change. At the $25 level, this company had a whopping $8 billion market cap…but they did have over $500 million in sales.
I could have listed many more but you get the hint. One must realize that these investment bankers take advantage of the public by perpetuating the “hotness” of these issues. But they could not get away with this without the public. If the public would keep their emotions in check and pick their poison, these stocks could never get their valuations. The good news is that recent IPOs like Groupon and Zynga have not budged from their IPO price with Zynga actually down. This shows investors are finally becoming more picky about price…which will make the bankers think twice about price going forward.
SPECIAL NOTE: Be sure to register now for my next live Webinar on Saturday January 21, 2012. I will talk about the important implications of early-January’s market action…and much more. Click here for more information.
Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.