Trader Talk

Here's why Ferrari's IPO has nothing to do with the IPO market

A Ferrari logo is displayed in the showroom at Ferrari of San Francisco on October 20, 2015 in Mill Valley, California.
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You've heard the good news on Ferrari: the deal is tight, there are small allocations, and it's likely to price above the range.

This is great news for Ferrari, but it has nothing to do with the recent IPO market.

Here's a more typical example: American Farmland (AFCO), a farm REIT with properties in Illinois, California, and Florida, that went public today at the NYSE.

The price talk: 12 million shares at between $8.50 and $10.50.

It priced 6 million shares at $8, opened at $7, and is trading at $6 and change.

So instead of raising $114 million at the midpoint of $9.50, they ended up raising $48 million.


That's not only disappointing, it's downright embarrassing.

THAT is what the IPO market looks like today.

Call it the "Oh my God what a mess but at least we got it done" IPO market.

You've heard a lot about IPOs that have been postponed (Albertson's) or withdrawn (Digicell, Sungard). I concentrate on the stuff that has gone public, and how it is doing.

Read MoreFerrari IPO price as high as $53/share, above estimates: Sources

Here's what's going on:

In the last four weeks, there have been 14 IPOs, according to Renaissance Capital, an IPO firm that also runs the Renaissance Capital ETF (IPO), a basket of about 60 recent IPOs.

Of those 14:

1) Only two priced within the expected range (Pure Storage and Cerecor, a small biotech);

2) Not a single one has priced above the midpoint of its range.

3) On average, the 14 have priced 22 percent below the midpoint of the price talk.

Ouch again!

But this has been good news for IPO investors, because those that have priced have been doing better.

Read More 10 iconic Ferrari models

The average IPO that has gone public in the past month is up about 11 percent, according to Renaissance Capital.

OK, so why is Ferrari a special case? It goes to what matters with IPO pricings. There are three major factors in all IPO pricings:

1) market conditions. Far and away the most important factor. You want to sell in an up market if at all possible.

2) sector momentum. You've often heard me say, "Biotech is hot" or "Everyone wants cloud!" or "anything with 'Internet of things' on it has a lot of momentum" or "everyone is looking for yield, and Master Limited Partnerships are hot." That's sector momentum.

3) company specifics, including debt, ownership, governance, fundamentals, valuation, and public perceptions.

Read More 5 things to consider before buying Ferrari shares

Let's look at these factors and apply them to Ferrari:

1) Market conditions: difficult; choppy trading on global slowdown and Fed rate hike worries.

2) Sector momentum: split: U.S. auto sales strong, luxury consumer sector still strong but China/Middle East sales visibly slowing down.

3) Company specifics: Unique product, very high sex-appeal.

That last factor is the key to understanding the Ferrari story, and why it may price above the range. Simply put, it just oozes sexiness. "I can't own the car, but I can own the stock," is what one IPO trader said to me.

That is a very rare phenomenon. When people just want to sidle up to you like you're a movie star, well, you can't do any better.

So enjoy it all, the Ferrari spectacle, the sportscars out front of the NYSE, the impossibly good-looking, well-dressed Italians that will be showing up.

Just don't think it has anything to do with the IPO market.

By the way, just pricing above the price range is a feat. The last deal that priced above the range was the Skinny Pop popcorn company Amplify (BETR), which went public on August 4th. The price talk was $14-$16, it priced at $18.

It closed at the end of the first day down 10 percent. It's now down 32 percent.