Time to Buy This Failed IPO?

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When a company makes its initial public offering, it’s designed to go higher in the first few trading days. This creates a sense of momentum. And when that doesn’t happen? It’s even called a failed IPO.
Coinbase (COIN) is the latest company to face a failed IPO. Of course, the company made a direct listing allowing insiders to cash out rather than raise money. But now, the company is looking to raise capital… by raising debt.

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  • Shares traded lower on the news Tuesday, as the convertible debt would ultimately dilute existing shareholders. But the late-day decline in the market helped as well. Overall, the $1.4 billion potential raise could allow the company to expand its operations and strengthen its balance sheet.

    The capital raise is also occurring as cryptocurrency markets have hit a recent peak and pulled back. But, much like buying
    Facebook (FB) after its failed IPO in 2012, longer-term investors could have the last laugh.
    Action to take: With shares shedding 46 percent of their peak value since going public, this is a contrarian entry point for the company. However, Coinbase is a cryptocurrency brokerage that’s not only growing, but currently profitable. And the recent volatility in cryptocurrencies is likely translating to more fees for the company.

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    Shares are a buy up to $250. For traders, the January 2022 $300 calls, going for about $27.20, shouldn’t lose too much value while waiting for a rebound in shares. If cryptocurrencies take off again, shares might too. At a price of $400 per share, the option would nearly quadruple in value to $100.

     
    Disclosure: The author of this article has no positions in the stock mentioned here, but may make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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