Saudi Aramco raises questions due to government involvement

Professor who predicted WeWork’s downfall says to avoid oil giant's stock

Despite Saudi Aramco being a “cash cow,” if its stock becomes available in the U.S., you shouldn’t invest in it because it is state-owned, an NYU Stern professor said on Tuesday.

Continue Reading Below

Stocks in this Article

AAPLAPPLE INC.
$113.33
+1.05 (+0.94%)

State-run oil giant Saudi Aramco will begin trading on the Saudi stock exchange, which has some asking whether it will soon enter the U.S. marketplace, too. By selling 1.5 percent of the company, Saudi Aramco will replace Apple as the world's most valuable listed company, according to Reuters.

NYU Stern professor Aswath Damodaran, who predicted the downfall of WeWork, joined FOX Business’ “The Claman Countdown” and said the Saudi government’s involvement is the biggest reason to avoid this stock.

SAUDI ARAMCO'S IPO A MAKE-OR-BREAK MOMENT FOR CONTROVERSIAL PRINCE

“What I found surprising was the guaranteed at least $75 billion in dividends every year until 2025,” Damodaran told FOX Business’ Liz Claman. “And they've really skewed the offering towards domestic investors. That surprised me.”

Claman agreed and said that it seemed like a “big red flag.”

“They wanted a $2-trillion valuation, and they traded off getting a higher number as value for losing international investors,” Damodaran said.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

“I think that's the problem with stating a number upfront before people start to look at your company.”

- Aswath Damodaran, NYU Stern professor

Damodaran was one of the few in the finance world who flagged WeWork as a potential disaster before it went public and its IPO collapsed. He told Claman that WeWork has always had “a bad business model” and will have trouble staying afloat in the long-term, especially during a recession.

AIRBNB BOOKS ITS IPO

Claman asked what companies Damodaran will be watching in 2020.

“Airbnb is my big one,” he said. “That's a company I would watch because it's going to set the pattern for the rest of the year. If it has a bad reception, that's not good news for IPOs for the rest of the year.”

CLICK HERE TO READ MORE ON FOX BUSINESS