As Alibaba was preparing to sell shares to U.S. investors for the first time, Jerry Verseput tried to persuade his clients not to throw money at the giant China-based e-commerce company because he thinks IPOs are a gamble, especially those with a lot of hype.
“I said if you want to go play with the money, I will do it for you but understand this is for entertainment purposes and not an investment strategy,” said Verseput, president of Veripax Financial Management in Folsom, California, who manages about $65 million. For the two clients that insisted on buying stock, Verseput made sure they only invested less than one percent of their assets in the initial public offering (IPO).
That was probably good advice. Six months after Alibaba’s IPO, the shares are down more than 29 per cent from their November high. Alibaba opened on Sept. 19 at $92.70, ended its first day at $93.89 and reached its peak on November 13, when it hit $120. The stock closed Tuesday at $84.50, about 24 per cent above the $68 IPO price.
Alibaba, which already commands 80 per cent of the Chinese market and handles more ecommerce than Amazon and eBay combined, trades at a price-to-earnings ratio of about 30, compared with Seattle-based Amazon, which sports a three-digit P/E.
A lock-up period expires today allowing insiders owning a total of 437 million Alibaba shares to sell. A larger lock-up of more than a billion shares held by insiders, including Yahoo! expires in September. Some investors are worrying about further drops in the stock as insiders sell.