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The IPO's Fairy Tale

By Charles Payne, CEO & Principal Analyst


Unicorns are mythical creatures that have piqued the interest of man for centuries; more recently, they have been affixed to private growth companies that reach $1.0 billion in valuation.

Many of these businesses have become household names; usually, that adds to the notion of buying them when the equity becomes available to individual investors.

However, I’m the guy who is always talking about owning great American companies, but there is a caveat. These companies must not be overvalued, and the American public shouldn’t be some collective patsy for the elites of Silicon Valley and Wall Street.

There are some 200 unicorns, and many are becoming public.  My beef has been and continues to be that all the value and growth opportunities are already sucked out of theses IPOs. In the past, companies would go public a lot sooner, giving investors a chance to ride along toward market valuations and returns. Now, the public serves as the cashing out point.

I suspect the public is getting hip to all of this, considering a couple of unicorns that have gone public and have gone south since. Blue Apron (APRN) and Snap Inc (SNAP) are now changing hands below their IPO price. Keep in mind that a lot of small investors got the IPO, and bought the stock upon trading.   Sure, these stocks can come back; Facebook (FB) slumped beneath its IPO price for 14 months, but these companies are not Facebook, which really squeezed every nickel from the public when it began trading.

Recently, AMZN announced their plans to enter the meal kit market posing a threat to Blue Apron (APRN) that has already tumbled since its initial public offering. 

More and more of these unicorns are busted public companies; be careful of fairy tale stocks, even those with good products because, for the most part, all the magic of investment returns might already be gone.

Charles Payne
Wall Street Strategies


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