Imagine showing up to a party and find you're the only one in
the room. This is the lonely feeling many companies experience when
they complete their
initial public offering (IPO)
. These companies spend a great amount of energy preparing for
their debut, only to find little investor interest once they go
public. When their stock drops like a stone after the
party,depression can set in. But for some of these companies, it's
only a matter of time before their stocks regain strength.
FriendFinder Networks Inc. (NYSE:
rose a hefty 12% on Friday, July 7, perhaps on word the company had
resolved a major lawsuit the day before. FriendFinder -- which
operates dating websites, adult-oriented media properties and
religion-oriented sites -- looked like it was ready to bust out
after picking up fresh analyst coverage on June 22, when it rose
7%. This pop was the "
" pop that I wrote about
in this article
. Even with a pair of sharp one-day moves,shares still trade for
less than half their May 11 offering price of $10.
In the table below, there are a few of IPO wallflowers that may
still get asked to dance. Their
may lag now, but could move higher in coming months.
From this list, I've found three recent IPOs in particular that
have already started to show signs of improvement, making them
potentially profitable value plays. Here they are...
1. Boingo Wireless (Nasdaq:
At first glance, this
held little appeal to me. The provider of Wi-Fi "hot-spots" at more
than 300,000 locations would seem to be doomed by the advent of
all-you-can-eat data plans from wireless service providers.
But recent news that
wants to cap its users' data usage -- a move likely be copied by
rivals -- puts Boingo back in play. You could now argue consumers
will be better off subscribing to Boingo's plans in places such as
airports to avoid racking up the dreaded overage charges on their
wireless bills. This may explain why shares have moved up 20% since
bottoming out a month ago.
Despite the upward move, this is still a very cheap stock, trading
at around six times projected 2011
before interest, taxes,
). The charm of this business model is management can ratchet
spending up or down according to need and
. If demand is strong, then look for many more hot-spots to be
added. If demand cools, then look for the company to hold off
expanding and instead squeeze more cash flow out of each existing
hot-spot. Shares, recently trading at $9.50, could move up into the
mid-teens according to analysts who recently initiated coverage.
2. RenRen (Nasdaq:
After bottoming out one day after
I said it was "finally a bargain"
on June 23, shares of this Chinese social networking site have
risen for eight straight sessions until the market headed south on
Friday, July 8. All told, the stock moved up 68% in just two weeks.
The move comes as investors pour back into Chinese social media
have all rebounded in recent weeks as well.
The rotation back into RenRen and its peers has a reason. Concerns
have risen that the Chinese
may be cooling. The banking sector is dealing with a rising tide of
possibly delinquent construction loans and
is becoming more troublesome. However, any economic slowdown would
leave these consumer-facing web-based business models largely
unscathed as long as Internet consumption and advertising trends
continue to build.
As I noted a few weeks ago, RenRen is boosting sales at a fast
clip. Although shares aren't cheap based on traditional metrics,
investors are angling for a position with these potentially
high-growth business models. I continue to think this is a name to
own, though you should know it can be volatile, as evidenced by the
initial swoon and subsequent sharp rebound. This stock is
definitely a play for the long-term, not the short-term.
2. NeoPhotonics Corp. (Nasdaq; NPTN)
I have some pity for the folks that bought into this February 2011
IPO, soon after it came public. Shares quickly soared from the low
teens up to $20 and stayed aloft until the earthquake in Japan. The
crisis made it quickly apparent that this maker of photon-based
semiconductors would take a deep hit to sales and profits. Five
months later, shares trade below $8.
It doesn't help that NeoPhotonics operates in the optical
networking space. This whole sector has been crushed this year by
key telecom service providers, which are slowing down orders to
. Even the firm's
, Merrill Lynch, concedes the business model is not especially
timely, noting that NeoPhotonics may suffer a hiccup as China's
Huawei, which represents more than 50% of sales, may need to put
the brakes on to reduce inventory of NeoPhotonics' chips as well.
Merrill launched coverage of NeoPhotonics back in March with a $12
price target, just as shares were starting to drift down through
the mid-teens. This price target was recently lowered to $11, which
is still 45% above the current price.
Right now, this is a value play until growth eventually returns.
The company is sitting on nearly $100 million in cash,
for about half its
. The stock has traded down to tangible
, which has likely put a floor in place. Shares trade for about one
times projected 2012 sales, which is half the average multiple seen
by optical networking stocks in the past 10 years.
Action to Take -->
These newly-public companies have seen their initial investors
exit. Too bad, because as new investors arrive to form a
shareholder base, look for support to build and shares to rise. As
a result, you may want to consider taking a position in at least
one of these names. These shares, which currently trade below their
offering price, may move back into the black in the quarters to
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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