Eric Sprott's Sprott Inc. went public late last week at a price of $10 per share on an issue of about 16% of the total equity in the firm and proceeded to dip by as much as $0.50 and ended the week (before the Canadian long weekend) down $0.23. Having raised $200 million, this gives Mr. Sprott's firm a valuation of approximately $1.5 billion, which is great, but also leaves Mr. Sprott scratching his head as to the cause of the dip.
Mr. Sprott said, in an interview with the Globe and Mail newspaper, that he believed the less-than-stellar result in the companies first public showing to be the result of short-sellers betting against his company. What's surprising about this, however, is that even a freshman finance student knows that that's quite unlikely to be the case with any IPO. Short-selling requires a stock to be borrowed and then sold in order to profit from any decline in the stock's price. However, an IPO means that the stock is just entering the market and is unlikely to be available in brokerage accounts for any borrowing to take place. Consequently, many believe that the true cause of the fall in Sprott Inc.'s stock price is due to its fundamentals.
As a hedge fund betting on metals and energy, Sprott Inc. is certainly in the industries making the news these days. That said, they're making the news because their prices are constantly breaking record highs and many are questioning for how much longer this trend can continue. Ask Mr. Sprott and you're sure to get the answer that you'd expect, but apparently the market sees things differently and are valuing the fund at less than what Mr. Sprott had anticipated. Beyond the impact to Sprott Inc., this result has interesting implications for the economy as a whole; what is happening with the energy industry and how much longer can this go on. Is it, in fact, time to go short or do you believe some reports that gasoline may soon see double-digit prices per gallon at the pumps?
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