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A123 Systems Soars on IPO, but Why?

Even if newly public battery maker A123 Systems (AONE) soars in the aftermarket, don't feel too bad about being left out of the IPO party, because there are much smarter ways to play the lithium-ion battery market.

A123 Systems priced its $378 million IPO Wednesday night, selling 28.1 million shares at $13.50 each, and the stock began trading Thursday. It closed at $20.29, up $6.79 for a 50.3% gain. Shares were down 10 cents after hours.

The company increased the deal size by almost 10% even after raising the offering price by 50% from the initially indicated range. Like China Bak Battery (CBAK), A123 is a money-losing company trading on an excessively high valuation.

Profitable alternatives such as Advanced Battery Technologies (ABAT), China Sun Group (CSGH), Hong Kong Highpower Technology (HPJ) and China Digital Communication Group (CMTP) all make for a better fundamental investment.

In evaluating this IPO, I am a very biased investor because I refuse to invest in money-losing companies. When a company is being well received by investors because its "losses are declining," I don't feel too bad about not being part of the IPO party.

A123 does have an impressive client list, including Chrysler and Black & Decker (BDK). However, A123 has generated only $168 million in revenue since being founded in 2001. On revenue of $168 million, the company has lost $146 million since founding. I repeat, on revenue of $168 million since 2001, the company has lost $146 million.

Comparing A123 to its rivals shows that A123 got one spectacular deal from its IPO price. A123 will have an initial market cap of around $900 million. Compare this to money-losing CBAK, which now has a market cap of $230 million. CBAK has generated revenue of $225 million in the past 12 months. Over the past year, CBAK has lost about $10 million. Clearly, losing money is now the new trend in investing because CBAK soared 30% yesterday on news of the A123 IPO success.

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