All of the chatter about Twitter’s IPO may make you want to rush in and buy shares, but don’t lunge for your portfolio just yet. Santosh Rao, senior equity analyst and head of research at Greencrest Capital, talked to Metro about why retail investors should wait to buy today’s hottest IPO.
1. You don’t have all of the information. According to Rao, companies give information to potential bulk investors ahead of time. “They’ve showed them the financials and they’ve given them more detail than you and I know,” said Rao. “[The institutional investors] know the risk and opportunities much better than we do.” As a public company, Twitter will have to disclose more information going forward, so retail investors can make more informed decisions.
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2. It’s overpriced right now. Twitter stock began trading on Thursday at $45.10, closing at $44.90, but Rao said the value is more like $30. “It opened at $45 already and that’s when you get there, it’s too late,” said Rao. High demand for the limited shares drove up the price.
3. It will probably pull back. Rao said most stocks pull back after an IPO. “They always come back,” he said. “Wait for a pullback – don’t chase it. You never win the IPO in the first round.” He pointed to Facebook’s May 2012 IPO as an example, which dropped from $38.23 to $20.01 a share after two months – but the stock has since recovered, closing at $47 on Thursday.
Rao is not saying that retail investors shouldn’t buy Twitter stocks; in fact, he said that the company has a lot of potential. But Rao advised retail investors against “quick in and out” trading and suggested potential investors do their research and look at the long term when investing in the company.
Follow Andrea Park on Twitter: @andreapark