Earlier this week, I shared with Money Morning readers a breakdown on how IPOs are priced.
In this IPO pricing overview, Money Morning Capital Wave Strategist Shah Gilani explained the pitfalls of over- and underpricing an IPO.
If underpriced, the company can lose out on raising a larger share of capital.
Today, I'd like to specifically address pricing and investing in tech IPOs, for two reasons:
Number one, tech IPOs are particularly sexy.
These are companies with fascinating innovations, crazy hype, and major potential to pop for investors.
For these reasons, tech IPOs can stand apart from other IPOs when it comes to investing.
And number two, we just so happen to have a fantastic resource on the subject – Money Morning's own Defense and Tech Specialist Michael A. Robinson.
Michael is a Pulitzer Prize-nominated writer and reporter with a 30-year track record as a leading tech analyst.
As you can imagine, he has a lot of knowledge on point and is poised and ready to help our readers.
So, I sat down with Michael and picked his brain on how tech IPOs go about the pricing process, and how investors should approach these investing temptresses.
Here's everything you need to know about how these new issues are priced – plus Michael's #1 Rule for Investing in Tech IPOs.
Pricing and Investing in Tech IPOs: Tips from Michael Robinson
On the valuation process, Michael says, "Tech IPOs are very difficult to price because these companies have a lot of intangibles and a ton of sex appeal. By that, I mean these are classic growth firms that may be adding new sales of more than 50% a year, but have inconsistent earnings as they spend on entering new markets, R&D, product improvements, hiring and more."
Unlike a lot of other industries, tech is oftentimes in uncharted waters…