Castlight Health (CLST) saw its share price soar from $16/share to close to $40/share on the first day of its IPO last week. Despite bringing in just $13 million in revenue yearly thus far, its market cap still managed to hit $3 billion. Now some are wondering if this is an indicator that the IPO market may be approaching bubble territory. (Morgan Stanley (MS), Goldman Sachs (GS), and other top underwriters had priced the shares at $16, just over the raised and expected range of $13 to $15 per share)
Motley Fool analyst Ron Gross observed on Friday’s Investor Beat that this is the ninth IPO to double during its first trading day in the last nine months. Previous to that only five IPOs had done the same in the last 12 years. So yes, he says this is bubble area. Gross expressed concern that investors might be getting into stocks with super high valuations in light of the momentum yet later find that they are framing themselves for failure because they didn’t purchase the stocks at the right price.
However, reports USA Today, Castlight EO Giovanni Cilella is saying that the company sold its shares at the right time and financing is being done to keep up with customer demands. The company makes software to help employers and companies control the costs of healthcare.
Bottom line, is investing in Castlight a good idea for investors? Hard to say for sure, really. One need only look at how Twitter’s (TWTR) IPO proved successful for IPO participants and investment banks but not so much for retail investors. And in an article posted on Investopedia in 2012, David Bakke outlined the risks of getting involved in IPOs and startups, including how losses can result when an investor buys into the hype—remember the Facebook IPO—and what can happen if you bet on stocks that made quick profits in the long-term, and the downsides of having an inexperienced team at the helm of a company.
It is important that your broker or investment advisers understand the risks involved putting your money into IPO stock and is aware of whether/not you and portfolio can handle what could arise. If you think your investment losses are a result of bad or inappropriate investment advise and money handling you received, please contact our securities lawyers today.
Castlight Health: Most overpriced IPO of the century, YAHOO, March 14, 2014
Castlight Health IPO soars 149% in debut, USA Today, March 14, 2014
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