What's going on?

Famed Italian tiremaker Pirelli said on Friday it will raise about �2.5 billion from investors as it returns to public markets in an initial public offering (IPO) that will begin trading later this week. It�s likely to be one of Europe�s biggest IPOs this year!

What does this mean?

Pirelli�s premium tires are used for Formula One racecars and for upscale auto brands like Ferrari and Lamborghini. Its stock used to be publicly traded, but Pirelli was turned into a private company in 2015 after a takeover by a consortium of buyers (led by ChemChina, a huge Chinese state-backed chemicals firm).

Importantly, ChemChina separated off Pirelli�s less profitable industrial tires business and joined it with its own Chinese business. Now, Pirelli is left to focus almost exclusively on luxury tire manufacturing.

Why should I care?

The bigger picture: Making tires is a pretty lucrative enterprise these days!

Relative to building cars, building and selling tires is a much more profitable business: take Germany�s Continental, for example, an automotive conglomerate whose tiremaking division is more than twice as profitable as the other branches of its business (like brake systems or interior electronics). Pirelli offers investors direct exposure to the tiremaking industry (rather than a company, like Continental, that has lots of different products) and should therefore appeal to investors looking to focus directly on the sector.

For markets: Investors will want to see if Pirelli will be worth more than its peers.

Now that it�s focused on high-end tires, Pirelli�s business should be more profitable than it was before. That means that its stock should trade at a premium when compared to a competitor like Continental, whose profits are more likely to be weighed down by the rest of its business. That said, Pirelli still has quite a bit of debt and is largely exposed to just one part of the consumer tire market � both of which increase the riskiness of the company and could decrease investors� willingness to buy its stock.