A Guide to Pricing and Investing in Tech IPOs

Email

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.

An overpriced IPO can be a death sentence for a company, generating bad PR, a stock that bombs, and more. Facebook's (NASDAQ:FB) IPO disaster is a prime example of IPO overpricing.

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…

Join the conversation. Click here to jump to comments…

  1. Kristin Ward | July 18, 2013

    I agree completely. Everyone wants to get in on the company that goes big and with the way things are trending, most people feel that its technology companies that will make it big. When looking for companies going public I try to find ones that have been around for a while that don't have huge hype before they come out (cough*facebook*cough). IALS for example just went public, its a good solid company.

  2. brian | July 19, 2013

    How about instead of "laughing with Michael" while you work you actually provide useful info on IPOs instead of the shit that's been in these articles…not even a possible company to watch. I think anyone with an ounce of smarts knows its not a good idea to buy at the high end of an IPO pop…

    • Tara Clarke | July 23, 2013

      Hi Brian, thanks for your comment.

      As the headline suggests, this article is intended to be a guide to the way IPOs are priced and a rule of thumb for investing in them.

      For specific stock picks, I highly recommend signing up for Michael Robinson's "Strategic Tech Investor": http://strategictechinvestor.com/

      Within, he explores "what's next" in the tech investing world and identifies companies for investors.

Leave a Reply

Your email address will not be published. Required fields are marked *

Some HTML is OK