Wednesday, July 7, 2010

Tesla Motors: A Broken IPO

Shares of electric car maker Tesla Motors (Nasdaq: TSLA) began trading last Tuesday, June 29 after the stock's initial public offering (IPO) at $17 per share. Tesla's shares rose 40 percent on their first day of trading, and peaked as high as $30.42 on Wednesday. The hype surrounding a new IPO is usually the main driving force behind a rapid run up such as this one.

However five trading days after its IPO, things seem to be turning around for Tesla Motors. Yesterday, July 6th, Tesla dropped over $3 to close at $16 and change ($16.11 to be specific). This closing price is below its initial $17 offering price. Traders call an IPO that has dropped below its initial offering price a "broken IPO". So, Tesla is now a broken IPO.

On this blog, I have written about buying IPOs before. While getting into an IPO can be a way to make money quickly, I have warned that not all IPOs go up in price. A point that I will again underscore is that buying an IPO can involve significant risk! This is certainly appears to be the case with Telsa.

Disclosure: I do not own any interest in Tesla Motors.



Robin said...

Another 10-pointer! Cheers!

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