Underpricing
What does 'Underpricing' mean
BREAKING DOWN 'Underpricing'
An IPO is a newly traded stock on the market and as such it
may be newly introduced to investors. The proceeds of its sale are used by the
company as capital for funding and future growth. The process for arriving at
the offering price includes many factors. Quantitative factors are first
considered; however, they are not the only factors that lead to the IPO price.
Firm Financials
The main quantitative factors for valuing an initial public
offering include the financials of the firm. Bankers review a firm’s sales,
expenses, earnings and cash flow. In an IPO valuation pricing, the company’s
earnings and expected earnings growth are key aspects of the price. In general,
a company will typically trade at a price-to-earnings multiple that is
comparable to its peers in the industry. The price-to-earnings multiple serves
as a base level to start from when valuing the IPO price.
IPO Price
Additionally, an IPO may be priced based on marketability
factors for its specific industry and the market as a whole. If bankers expect
a high demand for the product, that will be factored into the price. Also, if
there is a high demand for the IPO market in general at the time of the
offering that will also help the price.
Once an IPO price is arrived at by the investment bankers or
IPO deal leaders, it is marketed prior to its first day of trading at its IPO
price. It is believed that IPOs are often underpriced because of concerns
relating to liquidity and uncertainty about the level at which the stock will
trade.
To investors, an IPO may also be perceived as risky because
it does not have historical trading data. The less liquid and less predictable
the shares are, the more underpriced they will have to be in order to
compensate investors for the risk they are taking. Because an IPO's issuer
tends to know more about the value of the shares than the investor, a company
must underprice its stock to encourage investors to participate in the IPO.
Once the stock is first traded on the market, it officially
becomes publicly traded and owned by the shareholders who purchase the stock.
The shareholders then have control over the stock’s pricing in the open market,
and the stock’s price will fluctuate greatly from its initial offering price.
Financial Planning Tips for Infertility Treatments
For couples, dealing with infertility is a roller coaster of
emotions and uncertainty. The well-being, health insurance, place of residence
and finances of the couple will determine the best form of infertility
treatment.
The cost of fertility treatment can range from $5 to to over
$100,000. There are oral medications, IVF, injectable hormones, embryo transfer
and many more treatments available to infertile couples. According to
babycenter.com, Gonadotropin injections cost about $1,000 to $5,000 a month,
depending on the dosage and length of treatment. Additional costs associated
with infertility treatments include doctor visits, blood tests, and ultrasounds
for the various forms of treatment, as well as genetic testing and the expenses
related to surrogacy. With that in mind, here are five financial planning tips
for couples considering infertility treatments.
Double-Check Insurance
Not all states have a mandated infertility clause in their
insurance plans, and you do not want any unpleasant surprises prior to
beginning treatment. Make sure to speak with your human resources department
about the health benefits in your plan. Talk with the insurance company to
determine which costs are covered, and confirm the cost of co-payments for a
fertility specialist.
Consider the Affordable Care Act
According to Resolve.org, the Affordable Care Act (ACA) does
not require coverage for infertility treatments, though some states do mandate
coverage through their plans. "The ACA does require coverage of essential
health benefits and allows states to define essential health benefits by
selecting a benchmark plan from current employer offerings. Coverage of infertility
treatments are required only for plans sold in a state with a mandate, provided
that it includes infertility coverage in its benchmark plan." Presently,
there are in vitro fertilization (IVF) mandates in Arkansas, Connecticut,
Hawaii, Illinois, Massachusetts, Maryland, New Jersey and Rhode Island. (For
more, see: Essential Benefits Covered Under the Affordable Care Act.)
Apply for Grants, Loans
There are numerous programs that couples may apply for that
might help with the cost of treatments. Resolve.org has lists of such programs;
however, be wary of anything that seems too good to be true. Always research
companies and organizations to protect your heart and wallet.
Seek Out Financial Planning
Consult with a financial advisor to develop a financial plan
and evaluate your options. An advisor can give a couple a financial forecast
and strategies to help make their dream a reality.(For more, see: How to Find a
New Financial Advisor Who's Right for You.)
Participate in Clinical Trials
Ask your fertility specialist about clinical trials in which
you may be able to enroll. Visit www.centerwatch.com for a list of infertility
medical research trials.
The best tip is to not give up hope. Infertility treatments
are a significant investment. In the end, when you have a beautiful bundle of
joy, it is all worth it
Auto Loans Surpass $1T Mark, Registration at All-Time High
New vehicle registrations for Q1 2016 have hit a record high
in the U.S., climbing 7.5% year-over-year according to the latest report by
Experian Automotive. The number of new vehicle registration is now 86.9%, up
since the recession that shook the economy in 2009. The report lists General
Motors (GM), Toyota (TM) and Ford (F) as the top three market players, with a
cumulative market share of 44.26% and individual share of 16.44%, 15.63% and
12.19% respectively.
Earlier this year, automotive loans crossed the
trillion-dollar mark for the first-time ever. According to a report by Experian
Automotive, the total balance of open automotive loans reached $1.005 trillion,
climbing 11.1% during Q1 2016 vis-à-vis $905 billion during Q1 2015. The figure
stood at $813 billion during Q1 2014.
During Q1 2016, 86.3% (vis-à-vis 84.9% during Q1 2015) of
new vehicles, and 55.3% (vis-à-vis 55.6% during Q1 2015) of used vehicles
purchased, were through financing. The average loan amount for a new vehicle
reached an all-time high of $30,032, while the average monthly payments for new
vehicle loans also peaked at $503. Out of the total open loans and leases during
Q1 2016, 63.42% were prime loans, while 17.79% and 18.79% were given out to
nonprime and subprime borrowers. Over the year, prime loans have increased by
8.87%, while nonprime and subprime loans went up by 9.52% and 10.91%
respectively. (See also: Subprime Auto Loans: What Borrowers Should Know.)
“The record highs we have seen in vehicle prices also have
had a significant impact on the loan market,” said Melinda Zabritski, Experian
senior director of automotive finance. “For example, the number of prime borrowers
who switched to leasing has driven an increase in the percentage of subprime
borrowers shown in the new vehicle segment. As a result, we will continue to
see consumers view used vehicles, longer-term loans and leasing as a way to
keep payments affordable.”
U.S. vehicle sales have been robust during 2015 at almost
17.5 million, beating record sales of 17.4 million in the year 2000. The
decline in unemployment, revival in the U.S. economy, and affordable interest
rates, as well as low oil and gas prices, have all played a part in pushing up
sales. (See also: The U.S. Added Just 38,000 Jobs in May)
The Bottom Line
Analyst consensus suggests that 2016 will be another good
year for car sales, albeit the growth will be slower. At a time when car sales
are hitting the peak and interest rates are poised to move up on the back of
economic revival, a check on the quality of loans becomes "prime."
(See also: The Tangled Web of Interest Rates, Mortgage Rates, And The Economy)
Mobile chipmaker Qualcomm Inc. (QCOM) is no stranger to
lawsuits when it comes to enforcing its patents, but when it comes to its new
fight with Apple Inc. (AAPL) it’s happening at a tough time.
With expectations high that Apple will roll out the iPhone 8
at some point this year, the legal battle between the two could hurt Qualcomm’s
relationship with Apple and thus its sales prospects. The iPhone 8 is expected
to have a lot of innovation crammed in that could breathe new life into the
smartphone market, which is still Qualcomm’s main business. With the iPhone 7,
Apple for the first time tapped Intel Corp. (INTC) as a second source of mobile
chips. When Apple launched its $1 billion lawsuit against Qualcomm late last
month, shares of Intel gained as expectations abounded that it could become a
bigger supplier to Apple.
Qualcomm CEO Optimistic
Against that backdrop, Qualcomm Chief Executive Steven
Mollenkopf didn’t seem so concerned about the fight with Apple. According to
CNBC, Mollenkopf said at the Goldman Sachs Technology and Internet Conference
that Qualcomm has been through patent disputes in the past with the CEO
pointing to its fight with Nokia years ago. Because of its past experience and
the fact that it has secured more than 300 licenses, 120 of which came from
China during the course of the past two years, it has experience with lawsuits.
“It's pretty difficult to look at Qualcomm and say: I don't want to work with
them some time in the future," Mollenkopf said, noting that he expects
Apple and Qualcomm to settle out of court. He noted that Qualcomm will likely
be quiet as the battle develops, preferring not to argue every point in the media.
(See also: Report: Qualcomm Mulling Apple Countersuit.)
In late January, Apple, which up until the launch of the
iPhone 7 only used Qualcomm’s chips, claimed in the lawsuit that Qualcomm
withheld close to $1 billion in payments to Apple “for responding truthfully to
law enforcement agencies investigating them." Apple was referring to its
cooperation with the Korea Fair Trade Commission, which fined Qualcomm $865
million over what it says are anti-competitive behaviors when licensing its
patents.
Apple’s lawsuit also contends Qualcomm tried to “extort
Apple into changing its responses and providing false information to the KFTC
in exchange for Qualcomm's release of those payments to Apple," something
it said it refused to do. What’s more, Apple says Qualcomm overcharged it by
five or more times the rate of its other licensors combined charge for cellular
patents. “We are extremely disappointed in the way Qualcomm is conducting its
business with us and unfortunately after years of disagreement over what
constitutes a fair and reasonable royalty we have no choice left but to turn to
the court's," Apple said in the statement. Qualcomm has called the lawsuit
“baseless” and vowed to fight it.
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