how can a company with $10million sales have an “IPO” of $billions?
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Sometimes companies get on the leading edge of big trends. The first $10 million in CDs, cell phones and DVDs, indicated the beginnings of huge trends. CDs replace vinyl records. cell phones became something nearly everyone owned and used. DVDs replaced video tapes.
People want to get in on the ground floor and make a lot of money. So, these hot IPOs go for a whole lot more than normal IPOs.
Also, stock prices are supposed to reflect, not the company’s sales today, but rather, the sales over the next few years. Nobody does an IPO unless they have a story about why there company will grow.
Let’s say I have a $10M company, but I can convince investors I will double every year for the next 3 years.
Next year: $20M, 2nd year $40M, 3rd year $80M. Let’s suppose I have a great %12 income level (double the income rate of a lot of companies). On $80M, %12 = $9.6M income. If investors give me a 20 PE ratio, that makes my whole company worth 20 time $9.6M, or $192M. Not a billion, but in the neighborhood of a fifth of a billion.
So, if a $10M company can do an IPO for a billion, people are thinking it will do much better than double for the next several years.
There are examples of companies that were able to do that (Google, Ciscso, etc.).
An IPO is initial public offering.
If the company and or products look like sales can be grown in the next few decades.. investors will pay huge premium prices for the stocks.
Say a single stocks book or core price is worth a measly $15 dollars. Investors may pay $1500 a single stock if the future looks promising enough.
Does this help?
its like that man