Money & Investing
The IPO Parade Is Now Marching Ahead, a Look at Youku.com and Sodastream
The IPOs are coming! The IPOs are coming! The IPOs are here!
IPO, of course, stands for "initial public offering" stocks. When the bear market struck with its wicked paw, stocks got clobbered through late 2007 to early 2009. The IPO market was nowhere to be seen. It seemed no one wanted stocks. There was just no market for new issues.
However, with the stock market pushing higher from early 2009 -- from a Dow Jones industrial average of 6,469 to its present level of around 12,000 -- IPO stocks are coming into favor again, and it is exciting to see new companies now trading publicly.
Historically, a new bull market usually brings new faces to the party.
In the first quarter of 2010, there were 27 IPOs. In the second quarter, there were 38. In the fourth quarter, 50. So, one can see that there's been a healthy pick-up in IPOs. Of course, a big name IPO that was floated in the fourth quarter was General Motors Corp. (GM)
The new bull market is enticing private firms to go public.
On January 26, Nielsen Holdings (NLSN), the media rating firm, went public at 23. Its first trade was at 24.75. It is now at 25.40. Also, Demand Media, Inc. (DMD) made its debut. It was offered at 17. It opened at 23.50 -- a strong gain. It has since backed off to 21.85
This could be a very good time for investors to keep an eye on IPO stocks. The technical bullish attraction for an IPO stock is that it has no "upside overhead resistance". That means, no one bought at a higher price and is now anxious to sell.
Also, an IPO is usually an untarnished new name and its products or services could be unique and have strong profit potential. That's the lure.
However, investors do need to be very cautious and analyze an IPO stock carefully and not get carried away by the hoopla. Also, they need to keep a careful eye on the stock market's trend.
The temptation is to jump into an IPO stock on the first day it trades. That may not be a good idea. An investor needs to keep his cool and not get caught up in the excitement no matter what the pitch.
I remember during the dotcom craze in 2000, I received a call from someone about a so-called hot stock that had climbed from 8 to 25. The rumor was that the stock could go to 40. When I analyzed the company, it had a book value of 8 and had no business. It just said it was thinking about going into some business. That, to me, was vague, and a red light went off. Needless to say, the stock later fell. Nothing ever came of the company.
When considering investing in an IPO stock, you should do your homework and go through a check list.
- Follow the IPO market itself. It can go through times of booms and busts. Make every effort to know where you are in the IPO cycle. Also, get to know the reputable underwriters.
- Don't rush to buy on the initial offering day. Often, it is a good idea to give a new IPO -- even a hot one -- a few weeks to settle down in price. Buying on a pull-back or off a well-formed technical base may often be the way to go, as far as timing. Don't feel rushed to buy, falling victim to the "I just have to get in now" syndrome.
- Do your fundamentals research. Study the company's business prospects via its prospectus, past earnings and sales growth, its products or services, its competition and, most importantly, the management and its reputation. Check management's holdings and any stock option plans.
Keep in mind the "Roach Rule". The one problem you do see may often be the tip of the iceberg, with others lurking underneath somewhere.
Some interesting companies could go public later this year. The word is that Groupon is considering an initial offering and is in talks with bankers. Some estimate that an offering could be from 1 to 1.5 billion.
Groupon provides online discounts. It says it has 50 million users in 500 cities and 40 countries.
Another potential initial offering to study would be Facebook, the international social network firm on the web. Facebook has been arranging financing through Goldman Sachs. Some say this is being done to avoid, at least for the time being, an IPO. The word is that the company does not want to disclose all its finances. It will be interesting to see what develops.
Since the start of the fourth quarter of 2010, the top-performing IPO, based on the proposed initial offering price is Youku.com Inc. (YOKU). The stock has soared 136 percent to 30.25 from its proposed initial offering price of 12.80. (See the table shown below; source: www.tickertapedigest.com.)
Youku.com provides video content in China via its Internet television platform. Its website enables consumers to search, view and share video content. The video is professionally produced and includes dramas, variety shows and current events. Its sales are unavailable.
The company disclosed a deal in early January to offer content from Warner Brothers. It is Interesting to note that the stock did not move much on the news. So, for the market, it seemed like a non-event.
Piper Jaffray came out with a target price of 40 for the stock. Interestingly, Piper was co-manager of Youku's initial offering. This year, analysts look for Youku to show a loss of 29 cents a share.
The second-best performer, based off the proposed initial offering price chart, was Vera Bradley Inc. (VRA), which soared 113 percent. The stock was set to be offered at 16. It is now at 34.22. So, it was a hot IPO.
Vera, with sales of 342 million, produces ladies' handbags and accessories. Net for fiscal 2011 ending January is expected to be 1.07 a share. Next fiscal year, 2012, The Street is looking for only a modest 4 percent gain in net to 1.11 a share.
Now, a second table shows the top IPO performers recently based, not on the proposed offering price, but the actual price the stock opened on the day of the offering (source: www.tickertapedigest.com).
The top performer, based on those criteria, is Sodastream International Ltd. (SODA). The stock began trading at 24.12. It is now at 38.98 for a gain of 61 percent.
Note that Youku.com was up only 12 percent, based on its opening price. Vera Bradley was up a strong 49 percent from its first trade on the initial offering day.
Sodastream, with annual sales of 194 million, makes home beverage carbonation systems. They enable you to transform water into a soft drink or sparkling water. The firm is based in Israel.
This year, analysts forecast Sodastream's net will climb 32 percent to 1.05 a share from 80 cents in 2010. The stock sells with a price earnings ratio of 35. The company sells its products in 41 countries.
The second-best performer off the opening price was Ancor Pharmaceuticals, Inc. (ACOR) up 58 percent. The stock climbed from an opening price of $5 to $7.92.
Ancor, based in Palo Alto, CA, is a speculative medical play. The company is working on dermatologic compounds to aid in the treatment of skin problems. It has sales of $31 million.
Analysts expect the company to show a loss of 1.14 a share this year compared with a loss of 81 cents a share in 2010. In early January, Deutsche Bank put out a buy on the stock with an $11 target. Deutsche Bank Securitas, Inc. was involved in the offering.
The IPO market and the after-market are exciting places to search for new investment ideas. However, you need to do your research. Two key components to look for are the investing firms who sponsor the stock and the principle of a dynamic new product or service that can drive earnings higher.Mr. Fasciocco is the publisher of Ticker Tape Digest at www.tickertapedigest.com. He is a contributing writer for several publications. Mr. Fasciocco can be reached at leo@tickertapedigest.com.
