From Big Ideas to Big Profits

From Big Ideas to Big Profits

Whether you’re a seasoned vet or a novice trader it can be hard to keep up with all the nuances involved in investing.

One concept that was touched on by multiple financial experts in the Money Revealed docuseries is the initial public offering or an IPO.

An IPO is when a company “goes public” or enables the general public to buy shares of its stock for the first time.

Seventy-five new IPOs raised nearly $30 billion between April and June, a staggering amount and nearly DOUBLE the IPO pace during the first quarter (January-March) — making it the best quarter for total IPOs in almost five years!

Just take a look:


But not all IPOs pay off and it’s important to be calculated when claiming a stake in a hot and hyped IPO.

IPO Winners & Losers

Not all IPOs are winners. Most see an initial pop, but very often these companies’ share values come crashing down as fast as they soared higher.

Take Lyft (NASDAQ: LYFT) for example. Lyft has served as one of the biggest tests of the public market’s appetite for money-losing companies since the dot-com era, a theme that has become too regular amongst new IPOs.

And as one would expect the market isn’t into buying loss. As such since their debut Lyft has slowly but surely imploded, falling over 25% year to date so far.


On the flip side, however, we have winners like Beyond Meat (NASDAQ: BYND).

The plant-based meat company is up over 173% on the year and highlights how the right IPO can offer up amazing triple-digit wins in a flash.


4 Characteristics of a Good IPO

We look at a number of things ahead of a stock’s IPO to assess its profitability for you. But of these hundred-plus items, four stick out more than any others and have proven to be a great way to scrub out the duds when IPO hunting.

No. 1 – Protective Moats: Lyft doesn’t have any protective moats that can keep competitors from entering the ridesharing space and impacting Lyft’s bottom line. Think Bird and Lime scooters cutting into Lyft’s revenue for example.

No. 2 – Corporate Governance: We hear more horror stories on the Uber side of things, but Lyft has not gone without its fair share of bad press. A lot of it has to do with how they handle customer issues and complaints and manage their relationships with contracted drivers. It’s inadequate corporate governance to a “T.”

No. 3 – Accurate Valuation: If a stock feels expensive, it probably is. Lyft was widely overvalued at the time of its IPO and early movers paid the price, and virtually every Wall Street expert I spoke with shared this sentiment. The writing was clearly on the wall for big losses.

Speaking of losses…

No. 4 – Growing Profits/Expanding Losses: You start a business to make money. Sure, times get tough and there will always be some lean years. But to enter the public market operating at net loss seems pretty illogical. If we imagine how a stock can drop on a slight earnings miss, imagine sentiment on a company that has never, EVER turned a profit.

Beyond Meat, on the other hand, checks all these boxes in a good way.

They have a unique product with some top-notch scientists and a wildly expensive lab, which creates unique barriers to entry in this space.

They also appear to have strong leadership and oversight. BYND did have a high valuation for a food company. But it was nowhere near the absurd levels of Lyft.

And lastly, they actually can turn a profit.

Bottom Line: As IPO mania continues through 2019 don’t just throw your money at any ol’ opportunity. You must be targeted in your research on IPOs, including measuring each company against the four criteria above, to ensure you get the most out of your IPO investments.

With Purpose,

Patrick Gentempo

Patrick Gentempo