Time to Buy This Failed IPO?

When a company makes its initial public offering, it’s designed to go higher in the first few trading days. This creates a sense of momentum. And when that doesn’t happen? It’s even called a failed IPO.

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  • Coinbase (COIN) is the latest company to face a failed IPO. Of course, the company made a direct listing allowing insiders to cash out rather than raise money. But now, the company is looking to raise capital… by raising debt.

    Shares traded lower on the news Tuesday, as the convertible debt would ultimately dilute existing shareholders. But the late-day decline in the market helped as well. Overall, the $1.4 billion potential raise could allow the company to expand its operations and strengthen its balance sheet.

    The capital raise is also occurring as cryptocurrency markets have hit a recent peak and pulled back. But, much like buying Facebook (FB) after its failed IPO in 2012, longer-term investors could have the last laugh.

    Action to take: With shares shedding 46 percent of their peak value since going public, this is a contrarian entry point for the company. However, Coinbase is a cryptocurrency brokerage that’s not only growing, but currently profitable. And the recent volatility in cryptocurrencies is likely translating to more fees for the company.

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  • Shares are a buy up to $250. For traders, the January 2022 $300 calls, going for about $27.20, shouldn’t lose too much value while waiting for a rebound in shares. If cryptocurrencies take off again, shares might too. At a price of $400 per share, the option would nearly quadruple in value to $100.

     

    Disclosure: The author of this article has no positions in the stock mentioned here, but may make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.