Question

Albert Incorporated is a privately owned MNC in the U.S. that plans to engage in an initial public offering (IPO) of stock, so that it can finance its international expansion. At the present time there is too much volatility in the stock market because of the ongoing trade disputes between USA and China and also because of the existing political unrest in the Middle East due to ongoing strained relations between USA and Iran. There is a hope that the situation will improve in the near future. The U.S. market tends to be weak in periods when the other stock markets around the world are weak. A financial manager of Albert Incorporated recommends that it wait until the world stock markets recover before it issues stock. Another manager believes that Albert Incorporated could issue its stock now even if the price would be low, since its stock price should rise later once world stock markets recover. Who is correct? Explain

Answer 1

A financial manager of Albert Incorporated recommends that it wait until the world stock markets recover before it issues stock. This finance manager is correct. The volatility on account of global cues may keep the stock market depressed and hence the IPO may not be able to discover the right price of the stock. In case, the IPO doesn't do justice to the stock price, there will be value erosion for the investors despite the fundamentals being sound.

Hence, it's better to wait for the IPO.