One of the most anticipated IPOs in the world hit NYSE, but is it worth the wait?
Normally I scour the financial news and markets for the next Initial Public Offering (IPO) that's hitting the JSE.
But today is different.
In June this year, one worldwide mega brand announced it was listing on the New York Stock Exchange (NYSE).
Since then, many people across the world have been waiting in anticipation for undeniably popular brand to make its way onto the NYSE.
Now when you think of living in luxury like the rich and famous, what first comes to mind?
Three story house? Holidays in the most beautiful places? Buying expensive items?
Yes all these resonate with the rich and famous. But today I'm talking about expensive fast and flashy cars.
One of the most prestigious car brands in the world is attracting investors
The highly anticipated deal of the year that I’m talking about is, none other than Ferrari (NYSE: RACE).
As you know many people dream about owning a Ferrari. In fact, I’m sure many people would even just like to drive one, for a day.
Well, now you can.
Ferrari is now listed on the NYSE, so you can own a piece of Ferrari for the price of a share.
In the lead up to the listing, Ferrari raised about $893 million in its quest for listing. And in terms of profitability Ferrari is doing quite well.
Ferrari rebranded in order to make up for slow revenue growth.
From 2012 to 2013, Ferarri sold 6,922 cars and the company's revenue increased a modest 5% to €2.3 billion.
In 2014, Ferrari earned €265 million, a 7.7% increase year over year (YOY), and shipped 7,255 cars.
This year, total profit was €65 million in quarter one of 2015, a 20% increase YOY.
Now, Ferrari expects to record revenue of about €720 million to €730 million for the three months end 30 September. That would be an increase of 9% to 10% from a year earlier. Adjusted earnings are expected to rise from 19% to 22% which translate between €210 million to €215 million.
So there’s no denying that Ferrari is a profitable company, but with every investment comes some risks.
The two problems with Ferrari’s IPO
Firstly, the company said in its IPO filing that it hopes to increase sales in the Asian markets. However, government approvals and other federal regulations could hamper sales growth in this region.
"If our international expansion plans are unsuccessful, our business, results of operation and financial condition could be materially adversely affected," the IPO filing read.
This doesn’t give much confidence to investors wanting to put their cash in Ferrari’s listing.
Secondly, Ferrari notes that the 7,000 car cap that it’s implemented in recent years allows it to "focus on maintaining low volumes and exclusivity", however it "limits our potential sales growth and profitability."
So do you follow the crowd and pile in with your cash?
Before you get blinded by the investor’s demand and the excitement around it all, there two ways you can play this IPO…
Firstly, the best way to profit from a new stock is to hold off until the frenzy settles down and the IPO lock-up period ends. The IPO lock-up period is the period of time after a company goes public in which investors, like founders and venture capitalists, can't sell their shares of the stock.
It can last anywhere from 90 to 180 days after the company hits the market. This is a good amount of time to consider if the stock’s profitable. Not to mention, you’ll avoid much of the early volatility new stocks experience.
Secondly, you must wait to Ferrari’s quarterly earnings reports to come out. Although Ferrari is already a profitable company, you want to make sure it isn't piling up losses and becoming less profitable.
So as a final note: Investing in Ferrari stock seems like an exciting opportunity right now. Ferrari’s sound financials and popular brand will tempt many investors to throw money at it. But the best way to profit from any IPO is to be patient. If all still looks good in next few months or so, then maybe you can jump in.
Note: 5 of 1 vote