The Lockup Pe­riod

The Saratogian (Saratoga, NY) - - BUSINESS -

Q I read that shares of Be­yond Meat were down be­cause of its “IPO lockup pe­riod.” What’s that? — J.H., Los An­ge­les

A It’s com­mon in ini­tial pub­lic of­fer­ings (“IPOs,” when com­pa­nies first is­sue stock to in­vestors) that in­sid­ers who hold shares are not al­lowed to sell any for a set pe­riod of time after the IPO — typ­i­cally be­tween three and six months. That’s the lockup pe­riod, and it’s meant to keep share prices sta­ble or ris­ing. Stock prices often head south for a while once the lockup pe­riod ex­pires and some in­sid­ers start sell­ing.

In the case of Be­yond Meat, when the lockup pe­riod ended, about 80% of the com­pany’s shares be­came avail­able for trad­ing. The com­pany posted strong third-quar­ter re­sults the day be­fore the ex­pi­ra­tion, but shares dropped around 20% upon ex­pi­ra­tion any­way.

It’s often wise to steer clear of IPOs for their first year or so, to give the shares time to set­tle down.

Q What does it mean if a com­pany is de­scribed as grow­ing too fast to be prof­itable? — D.L., Coven­try, Rhode Is­land

A A com­pany’s prof­its are sim­ply what’s left after its ex­penses are sub­tracted from its rev­enue. But ex­penses are, to some de­gree, un­der the con­trol of com­pany man­age­ment.

For ex­am­ple, if a com­pany wants to grow briskly, it might spend as much as pos­si­ble hir­ing more work­ers and ad­ver­tis­ing. It might even cut its prices to win cus­tomers from com­peti­tors. Such moves will shrink its prof­its and can lead to losses. Some com­pa­nies will even bor­row heav­ily to in­vest in growth. Trad­ing prof­its for growth can work out well, for com­pa­nies such as Ama­, or poorly, if it ends in bank­ruptcy.

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