The Three-Step Strategy for Investing in Ferrari Stock (NYSE: RACE)

The Ferrari IPO priced at $52 a share yesterday. The deal was one of the most anticipated IPOs of 2015 and raised $893 million.

Now that the company has started trading, investors are wondering if investing in Ferrari stock will strengthen their portfolios.

That's why we created a three-step investing strategy for those looking to invest in Ferrari stock.

It will help you maximize your gains on RACE – take a look…

Investing in Ferrari Stock: The Financials

Founded in 1947, Ferrari has become one of the most valuable car brands in the world. Its line of cars can cost from $188,000 to upwards of $500,000. In fact, the most expensive car ever sold was a 1962 Ferrari 250 GTO for $35 million.

Ferrari maintains exclusivity by limiting annual production to 7,000 vehicles. The production cap ensures demand always outpaces supply.

"There are clear expectations from ourselves as Ferrari brand is unique," said CEO Sergio Marchionne 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.

investing in ferrari stockBut Ferrari's revenue still increased 5% to 2.3 billion euros ($3.2 billion) over the period. Its net profit also increased 5.4% to 246 million euros ($338.5 million). The revenue boost came from costly personalization done on the cars.

The company said it plans to expand sales into larger Asian markets. However, government approvals and other federal regulations could impede sales growth in China and other Asian countries.

"If our international expansion plans are unsuccessful, our business, results of operation and financial condition could be materially adversely affected," the IPO filing read.

Ferrari stock could also experience volatility as the auto sector recovers from the Volkswagen AG (OTCMKTS ADR: VLKAY) diesel scandal.

On Sept. 21, VLKAY stock cratered 20% after officials admitted the German automaker cheated on U.S. emissions tests. Regulators found the diesel models emitted more than 40 times the acceptable amount of nitrogen oxide.

The scandal sent ripples through the entire auto industry...

From Sept. 21 to the end of the month, European car companies lost a combined $50 billion in market value. Paris-based Peugeot SA (OTCMKTS ADR: PEUGY) and Fiat Chrysler Automobiles NV (NYSE: FCAU) stock fell 14% and 9%, respectively.

Despite recent volatility in the industry, Ferrari boasts solid revenue growth and strong brand recognition. That means Ferrari stock could be a strong addition to your portfolio down the road.

But IPO investing is a dangerous game for retail investors. Traders who aren't hedge fund managers or investment bankers can see huge losses if they aren't careful.

"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."

Here's the safest strategy for investing in Ferrari stock...

The Three-Step Guide to Investing in Ferrari Stock

Investing in Ferrari Stock Rule No. 1: Wait until the Ferrari IPO lock-up period is over.

The best way to profit from a new stock is to hold off until the frenzy settles down and the IPO lock-up period ends. The IPO lock-up period is the period of time after a company goes public in which early investors, like founders and venture capitalists, can't sell their shares of the stock. It can last anywhere from 90 to 180 days after the company hits the market.

Early Ferrari IPO investors are subject to a 90-day lock-up period. Given Ferrari stock starts trading as scheduled, the lock-up will end on Jan. 19, 2016. That's the perfect amount of time to consider the stock's profitability and avoid much of the early volatility new stocks experience.

Investing in Ferrari Stock Rule No. 2: Make the company prove it's worth your money.

Before buying a new stock, you'll also want to wait for a few quarterly earnings reports to come out.

One disastrous earnings report can send a stock plunging. Etsy Inc. (Nasdaq: ETSY) went public in April and reported a huge loss of $36.6 million in its first earnings report. Shares responded by falling more than 19%. The numbers reflected how far away Etsy is from becoming profitable.

Although Ferrari is already profitable, you want to make sure it isn't piling up losses and becoming less profitable. The only way to determine that is to wait for a few quarterly earnings reports to come out.

"IPO hype is based on what 'could be,' not what 'is,'" Fitz-Gerald explained. "Many times management cannot make the jump, and you do not want to pay the price for finding out which is which."

Investing in Ferrari Stock Rule No. 3: Use lowball orders.

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A lowball order is an order that's significantly below the fair value of a stock. It is commonly used to gauge the seller's expectations for the value of the stock.

Lowball orders are perfect for new stocks like Ferrari because they give you the power to name the price. It's always safer and more profitable to set the price you want and have the market come to you.

They also prevent you from chasing a risky trade, which can be tempting when a hot IPO hits the market.

"Temptation is the most powerful of all emotions, which is why Wall Street hypes IPOs the way they do," said Fitz-Gerald.

The Bottom Line: Investing in Ferrari stock seems like a thrilling enterprise right now. The company's sound financials and hot brand will surely urge investors to throw money at it once it hits the market. But the best way to profit from any IPO is to be patient. That involves waiting for the lock-up period to end, gauging a company's profitability over a few quarters, and setting your own price.

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...