Unprofitability Is the New Key to Riches
The first day of a new stock is a very hit and miss affair. This year, things have turned weird. Unprofitability is fashionable, and investors have become the regulators for common sense!
Private companies need help transitioning to the stock exchange, and Wall Street has made that a business! Companies are valued before being taken to market, but there’s one problem; valuations are subjective. As soon as the opening bell rings, it’s a tale of two extremes. Investors either rush in to snap up a hot new stock or beat it down dramatically.
Many market debutants in 2019 are focused on growth, but worryingly, some can’t even produce a roadmap to breaking even. A paradigm shift is working in their favor, however. Combine copious capital with a bull market and a lack of useful places to put it, and the result is fat cat private investors offering the most funding to unprofitable tech unicorns since the dot-com bubble of the early 2000s. It’s left investors with plenty of work to do when these stocks list.
However, instead of dive bombing into the pool with an enormous splash, some companies are preferring to ease into the market with a ‘direct public offering.’ In a nutshell, that means investors discover the value of the stock instead of having Wall Street thrust it upon them. If the market deems a share worth $20 and insiders give the nod to sell at that price, then the rubber hits the road without any wheel spin or tire smoke!
Thankfully then, the allergy to companies with stable profits may not be a problem forever. Investors do need to consider that when owning a loss-making company, every outgoing dollar eventually needs to be covered twice-over by incoming dollars, due to time-cost. However, in every sense, there is still an abundance of new names dropping on the market. Many get the same blanket treatment from frustrated investors. Among the chaos, perhaps there’s a unicorn out there worth our sponsorship?