A question by J.H., from Los Angeles, stated how he read about the shares of Beyond Meat going down due to its “IPO lockup period”, and asked what it was.
The answer read how it is usual in initial public offerings (when firms initially issue stock to investors) for investors in possession of shares to not be permitted to sell the stock for a particular time period following the IPO. This time period ranges from 3 to 6 months. This period is known as the lockup period, and its purpose is to ensure share prices are constant or increasing. Usually, after the end of the lockup period, stock prices fall and a couple of insiders begin selling.
Referring to Beyond Meat, when it reached the end of its lockup period, nearly 80% of the firm’s shares became open for trading. One day before its expiration, the firm released sturdy Q3 results. However, shares fell nearly 20% upon expiration.
A smart move would be to stay away, at least for the first year, from IPOs, and to allow shares to settle down by giving them time.
A question posted by D.L., Coventry, R.I asked what it means if a firm is said to be growing at a pace to fast to be profitable.
The answer read how a firm’s revenues are just what it is left following the subtraction of its expenses from its profits. However, it added, the expenses land, somewhat, under the firm management’s control.
For instance, if a firm wishes to grow speedily, it may spend most of its money on recruiting more employees and its marketing. The firm may even lessen its prices to attract more number of clients. Doing so will cause its profits to diminish and may pave way for losses.