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The Twitter Flop: Our Trade Worked Better

Twitter IPO

May 08, 2014 - The Twitter Flop: Our Trade Worked Better by Market Authority

Never buy an IPO again…

Instead, buy them all at $45… and bank an easier gain along the way.

Over the last year, nine of the biggest, most talked about IPOs hit the market with thunderous applause, sky-high valuations and naive bulls.

All but two of them were flops.

Xoom Corporation (NASDAQ:XOOM) is down about 13% since IPO

Tableau Software (NYSE:DATA) is down 8%.

Marketo Inc. (NASDAQ:MKTO) is up 49%.

FireEye (NASDAQ:FEYE) sits at breakeven, ready to fall.

Rocket Fuel (NASDAQ:FUEL) plummeted 52%.

Noodles & Company (NASDAQ:NDLS) fell 36%

The "hot, hot, hot" Potbelly (NASDAQ:PBPB) stock fell 53%.

Sprouts Farmers Market (NASDAQ:SFM) fell 27%.

And every one's favorite tweeting service Twitter (NYSE:TWTR) became an over-subscribed, over-extended flop that's now down 34%.

We all knew Twitter was a disaster in the making.

Without a profit to show, it hit the market at 70x sales and 40x book value with an undeserved $35 billion market cap. Compared to Facebook at 19x sales and 10x book, the writing was on the wall for Twitter's descent.

Why bother with a typical IPO? Why risk losing all that money?

Investors bid up the price of an IPO in spectacular fashion all the time. They overvalue the name. Premiums and valuations aren't realistic. Underwriters foam at the mouth. And then every one is shocked when reality hits, and stocks crater.

It's part of the reason we never trade IPOs.

Most are over-subscribed and overvalued right out of the gate. Your best bet is to wait for the hype to die off and seek value. But even that's a pain-staking process. It's actually much easier.

And like we said - you can buy all the hot IPOs for just $45 a share, and see greater profits. It's the First Trust IPOX-100 Index Fund (NYSEARCA:FPX). We spoke about this trade idea many times over the last year, as it ran from $32.50 to more than $48.

FPX now trades at $46 - a gain of 42% - as Twitter dives 30% below its IPO high.

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