When companies go public

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Michael_Fisher1
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When companies go public

Post by Michael_Fisher1 » Thu Oct 02, 2014 9:09 pm

Ive been researching a lot of biotech and pharma companies. When i look at their trading history seems a lot of times their shares will initially skyrocket then drop and stay flat for years. One example is Xoma Corp (XOMA) - right around the time they went public their shares jumped up quite a bit. Is there an explanation for this?

livesoft
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Re: When companies go public

Post by livesoft » Thu Oct 02, 2014 9:20 pm

Sure, brokers are supposed to sell, sell, sell the IPO shares and make people want to buy shares in worthless companies via spin, spin, spin. Then after the investment bankers and company officers have everybody's money, realit sets in and the shares drop in value.

Just think: If a company was profitable, why would it have an IPO? Shouldn't the owners just want to keep all the profits for themselves? An IPO usually comes at the stage where they need to sell to the greater fool.

If you are interested in biotech, go read Barry Werth's "The Billion Dollar Molecule".
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cheese_breath
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Re: When companies go public

Post by cheese_breath » Thu Oct 02, 2014 9:21 pm

Irrational exuberance
The surest way to know the future is when it becomes the past.

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Ged
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Re: When companies go public

Post by Ged » Thu Oct 02, 2014 9:25 pm

A lot of the time companies go public to raise money for research. This research can take time and often does not bear fruit.

If it does though the stockholders can do very well. It's a gamble.

Michael_Fisher1
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Re: When companies go public

Post by Michael_Fisher1 » Thu Oct 02, 2014 9:29 pm

So it is possible to profit from a company seeking funding after they go public? Im looking at Calithera (CALA) now since they just opened today at $10 a share.

Bubbagump
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Re: When companies go public

Post by Bubbagump » Thu Oct 02, 2014 9:57 pm

livesoft wrote:Sure, brokers are supposed to sell, sell, sell the IPO shares and make people want to buy shares in worthless companies via spin, spin, spin. Then after the investment bankers and company officers have everybody's money, realit sets in and the shares drop in value.
Absolutely.
livesoft wrote: Just think: If a company was profitable, why would it have an IPO? Shouldn't the owners just want to keep all the profits for themselves? An IPO usually comes at the stage where they need to sell to the greater fool.
I think this is the case in plenty of circumstances... see some of those Silicon Valley deals with a VALUATION of eleventy jillion dollars and no cash. Sure, that exists. However, there are plenty of us that are very profitable. There are other motivations in play though. Why IPO? Value. When you are private, you "trade" at a P/E of nothing. You own the stock and hope EBITDA is enough to pay out profits to yourself. A P/E of 10 or 15 sure sounds a lot better and then you also have much more potential cash to work with. Want that extra data center or need money to expand to Australia? An IPO can do that for you even if you are profitable. That said, I would not personally invest in any IPO I was not an insider on.

avalpert
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Re: When companies go public

Post by avalpert » Thu Oct 02, 2014 11:02 pm

Michael_Fisher1 wrote:So it is possible to profit from a company seeking funding after they go public? Im looking at Calithera (CALA) now since they just opened today at $10 a share.
Of course it is possible - but the data shows that over time IPOs underperform the market so it isn't likely. As with any other stock selection - unless you can point to what you know that the market is getting wrong in the valuation it has come you probably aren't going to be better than the market at guessing what the future value will be.

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