The Square Inc. (NYSE: SQ) stock price today (Friday) climbed again - up nearly 7% in intraday trading at $14.05 - after its successful IPO debut on Thursday.
SQ's IPO priced at $9, which was lower than its desired IPO range of $11 to $13. But early investors saw double-digit gains as the stock closed at $13.07 on Thursday, soaring over 65% from its opening price.
The company sold 27 million shares and raised $243 million in its Thursday debut. Square's current market cap is around $4.4 billion.
The Square IPO performed much better than some other tech IPOs this year, including Etsy Inc. (Nasdaq: ETSY) and Apigee Corp. (Nasdaq: APIC). SQ breezed past the average first-day gain of 14% for 2015 IPOs. Its IPO was also followed by a strong IPO performance from Match Group Inc. (Nasdaq: MTCH), which closed on Thursday up nearly 23%.
The SQ IPO came at a time of uncertainty for the global economy, as growth slows and the prospect of a U.S. interest rate hike in December has made investors wary. But the tech startup, founded by Twitter Inc. (NYSE: TWTR) Chief Executive Officer Jack Dorsey, still encouraged investors to drive up its weak price on Wednesday.
In the early afternoon today, Square's stock erased its initial intraday gains, dipping into negative territory.
While investors have been pouring over the company's financials, the SQ stock price today climbed to its intraday high because of this one factor...
The One Reason the SQ Stock Price Rose
Many aggressive investors rush into an IPO because they think a stock's debut is an easy way to make fast profits. Many also want to own a piece of the company that's going public.
But it's best to wait. The financial media loves to sensationalize IPOs, exciting overly eager investors.
"Temptation is the most powerful of all emotions," said Money Morning Chief Investment Strategist Keith Fitz-Gerald, "which is why Wall Street hypes IPOs the way they do. IPO hype is based on what 'could be,' not what 'is.' Many times management cannot make the jump, and you do not want to pay the price for finding out which is which."
And it would require a significant "jump" to get over Square's financials.
The tech startup's IPO filing shows a net loss of $29.6 million in Q2 and $54 million in Q3, according to Reuters.
Square's Chief Financial Officer, Sarah Friar, said in a Reuters interview she hopes the company can capitalize on the consumer trend of shopping with less cash.
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"Still, 40 percent of all commerce is done with cash and check, but slowly that's eroding," she said in the Reuters interview.
Perhaps SQ can benefit in the future from this consumer trend. Even so, investors should wait until SQ comes out with its next three quarters of earnings reports. This is the best way to see whether SQ can become a profitable company.
Money Morning also recommends not investing in new stocks until their IPO lock-up period ends. An IPO lock-up is the span of time where company insiders like founders and venture capitalists can't sell their stock shares. The period typically lasts from 90 to 180 days. Square, for instance, has a 180-day lock-up period.
Should I Buy Square Stock? The Square IPO is one of the most anticipated deals of 2015. Investors are hoping it will revive the sluggish IPO market, which only saw one tech deal last quarter. But is Square a good investment? Here's everything you need to know...