CarPartsOnSale.com: Do You Really Need Wall Street?
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With the IPO market drying up, expect to see more self-underwritten IPOs. However, a word of warning: typically, these deals are bad investments. Why? There are many reasons. First of all, these companies usually have problems and have difficulty gaining the interest of a Wall Street firm. Second, the stock usually does not have much research coverage or liquidity. Also, there are conflict problems. After all, an underwriter performs the important duty of due diligence. With a self-underwritten deal, you need to trust the issuer.
One of the self-underwritten deals on deck is CarPartsOnSale.com. The offering is as follows: 400,000 to 2,000,000 shares are to be issued at $5.50 per share. The proposed ticker symbol is CPOS.
I guess the first drawback is the company's name or, more specifically, the ".com" at the end of its name. With such IPO duds as Garden.com and Pets.com, it is a tough sale to get investors into a dot-com deal.
CarPartsOnSale.com is, of course, a small company. In the most recent quarter, the company had sales of $985,000. Losses were $117,000. Looking deeper, during the past year, the company had a negative cash flow of $1.1 million. Much of this was due to inventory acquisition.
Something else: The co-founders of the company are also partners in a company called Lone Star Classics. The problem? Well, Lone Star introduced customers to CarPartsOnSale.com - in all, representing about 40% of sales. With this conflict, was CarPartsOnSale.com getting a good deal? In fact, Lone Star Classics gets a 30% commission for referrals.
Now, CarPartsOnSale.com has a good site. Users have access to high-performance and specialty equipment. And the market is quite large. It was about $6.32 billion in 1997.
So as a consumer, CarPartsOnSale.com is a good place. But as an investment, CarPartsOnSale.com is definitely a long shot.