Should I Buy Ferrari Stock? (NYSE: RACE)

2013-03-05_Geneva_Motor_Show_8267Ferrari SpA (NYSE: RACE) stock hits the market on Wednesday, Oct. 21. The luxury automaker is one of the most anticipated IPOs of 2015.

As the company prepares for its market debut, investors are wondering, "Should I buy Ferrari stock?"

Here's a closer look at the Ferrari IPO and Ferrari stock...

Everything You Need to Know About the Ferrari IPO

The Ferrari IPO set a price range of $48 to $52 a share and will announce a final IPO price on the evening of Oct. 20. The company will sell 17.2 million shares and hopes to raise $860 million.

After the IPO, Ferrari will command a $9.4 billion valuation. That's slightly higher than Renault's $9 billion valuation and lower than Porsche's $11.4 billion.

The IPO is a spin-off of Fiat Chrysler Automobiles NV (NYSE: FCAU). According to the U.S. Securities and Exchange Commission filing, Fiat Chrysler is only selling 10% of Ferrari during its IPO. FCAU shareholders will own 80% of the rest of the company and Piero Ferrari - son of founder Enzo Ferrari - will own the final 10%.

Founded in 1947 in Maranello, Italy, Ferrari is one of the most prestigious car brands in the world. Its vehicles can cost from $188,000 to upwards of $500,000. The most expensive car ever sold was a 1962 Ferrari 250 GTO for $35 million.

Ferrari maintains exclusivity by capping annual production at 7,000 vehicles. That strategy ensures demand always outpaces supply.

"There are clear expectations from ourselves as Ferrari brand is unique," said Sergio Marchionne, CEO of Fiat Chrysler, at a presentation in Turin, Italy, on July 3.

Ferrari implemented its 7,000-unit sales cap after selling a record 7,318 vehicles in 2012. It sold 6,922 cars in 2013, down 5.4% from 2012.

10 13 15 should i buy ferrari stockDespite lower sales, Ferrari's revenue increased 5% year over year to 2.3 billion euros ($3.2 billion). Its net profit also increased 5.4% to 246 million euros ($338.5 million) over the same period. The revenue boost came from costly personalization done on the cars.

The company said in its IPO filing it hopes to expand sales into larger Asian markets. However, government approvals and other federal regulations could hamper sales growth in the 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.

With solid financials and a strong brand, investors keep asking, "Should I buy Ferrari stock?"

Here's how you should play RACE stock after the IPO next week...

Should I Buy Ferrari Stock After the IPO?

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We recommend waiting at least two quarters before investing in Ferrari stock. That way you can analyze earnings reports and avoid getting ripped off by the IPO process.

You see, IPOs only benefit institutional investors willing to buy thousands of shares of a stock before its debut. These Wall Street "VIPs" provide the companies triple-digit gains on their first day of trading, which teases retail investors into thinking they can grab most of these profits if they jump in right away.

Frequently, investors will rush into a new stock following an IPO, which drives the share price higher. But if you buy in at that point, you're buying at an inflated price. You also end up missing out on the gains the wealthy Wall Street investors already snagged.

When the price settles back down after the initial frenzy, many of the retail investors who got in late are looking at a loss. This disadvantage can cause huge losses for traders like us who aren't hedge fund managers or big-time investment bankers.

"IPOs are little more than a get-rich-quick scheme that's so heavily stacked against you that it makes the house odds in Vegas seem downright conservative," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "I say that because you are literally the last in a long line of people who are going to profit from the IPO process."

The Bottom Line: As Ferrari prepares to go public, investors are wondering if Ferrari stock is a buy. New stocks can be bad investments for retail investors because they tend to sell off right as retail investors buy into them. We advise waiting at least two quarters before considering Ferrari stock so you can avoid initial volatility.

Alex McGuire is an associate editor for Money Morning who writes about upcoming IPOs. Follow him on Twitter for the biggest news on the Ferrari IPO.

The IPO Market Saved the Best Deals for Last... Ferrari is just one of several huge IPOs set to hit the stock market during the last few months of 2015. One of them could raise more than every deal in July and August combinedHere are the five most anticipated IPOs to watch in the fourth quarter...