The frenzy over the recent
initial public offering (IPO)
) made one thing clear: Investors are desperate to get a piece of
companies that look destined to be thriving long-term businesses.
Yet many new IPOs don't really have an extended shelf life. They
raise money in the midst of a hot growth spurt, the growth
eventually cools, funds dry up and theshares are eventually
With that in mind, I've been looking at all of the IPOs of 2011,
searching for companies that can double or even triple their
revenue bases in the next decade. Here's what I've found...
1. Sequans Communications (Nasdaq:
, which states that the number of transistors that can be placed
inexpensively on an integrated circuit doubles about every two
years, has clearly been in place in the wireless sector. Data
traffic can zoom across cell-phone networks at ever-faster speeds.
Second-generation networks (known as 2G) appeared on the scene two
decades ago, 3G networks arrived in the middle of the last decade,
4G networks are now being rolled out by the likes of
. Within a few years, we'll be speaking of 5G. By then, you may
have the ability to wirelessly download hi-definition movies on any
mobile device at super-fast speeds.
France-based Sequans is at the heart of the trend, developing chips
that populate some of the most advanced wireless networks. Analysts
at Needham recently wrote, "By tying itself entirely to adoption of
next-generation technologies, Sequans has positioned itself as a
pure play on the growth of 4G/mobile broadband." Those analysts
predict the number of 4G-enabled mobile devices will soar from
about 30 million in 2011 to nearly 300 million by 2014. Even in the
absence of market-share gains, Sequans looks poised for solid
multi-year growth simply on the back of an exploding market.
Sequans generated $68 million in sales in 2010, a figure that could
rise to $170 million by 2012, according to Needham. Yet by
bottom-line metrics, more patience will be required, as this is a
Sequans only recently began to generate positive
before interest, taxes,
(EBITDA), and even with all of the impressive top-line EBITDA
growth, EBITDA will only likely reach $30 to $40 million next year.
trade for about 10 times projected 2012 EBITDA. EBITDA will
presumably swell nicely higher in subsequent years, so investors
are paying up a bit now for a likely bargain down the road.
2. Zipcar (NYSE:
As states and cities are further pressed to raise revenue, they are
making life miserable for car owners. In places like New York City,
the cost and hassle of owning and parking a car seems to get worse
every year. Making matters worse, a number of urban parking lots
are being torn down for new high-rise construction. This spells an
even greater shortage of parking spaces.
It's only a matter of time before an additional number of car
owners give up their keys and simply start using a car by the hour
from providers like Zipcar. The company went public in mid-April at
$18 soared to nearly $30. Thanks to the recent market downdraft,
shares can now be had for about $23.
The fledgling company has built a loyal and sticky customer base of
nearly 600,000. Just 2% of members cancel in any given month. This
has translated into a sales base that has risen from $106 million
in 2008 to $186 million in 2010. Recently-raised funds through the
IPO should help Zipcar expand its fleet and membership. Goldman
Sachs predicts membership will grow 20% annually though 2016,
potentially pushing sales above $500 by then.
This kind of growth should also help move Zipcar into the black.
The company had -3% EBITDA margins in 2010, but analysts are
modeling for EBITDA margins to rise to 6% by 2013. Shares still
look pricey in the context of near-term EBITDA potential, but
longer-term focused investors should benefit from a steady and
strong growth trajectory.
3. Gevo (Nasdaq:
Many investors have tired of the unfulfilled promises of
green-energy technologies: Hydrogen-powered cars garnered lots of
buzz in the past decade, though just a few prototypes are on the
road after billions in research and development (R&D) spending;
now solar and wind stocks scrape along at multi-year lows as a lack
of government subsidies shows their inability to generate power at
a low cost.
But we'll eventually crack the code with these technologies, and
one of the most promising new approaches can be found with biofuel
producer Gevo. Its isobutanol technology has already proven itself
in ever-larger test plants and already appears to be more
cost-effective than corn-based ethanol, potentially helping to
reduce our dependence on oil imports without government support.
"Unlike ethanol, GEVO's isobutanol is a more valuable product that
can be used in greater number of end markets and takes advantage of
existing infrastructure," note analysts at Citigroup.
The key for investors is the future price of oil. If oil slips back
below $75 a barrel, then Gevo's technological approach won't be
cost-effective. But if we're faced with a future of triple-digit
oil, then this company may have a home run on its hands. Of further
concern, the company is at least 12 months away from starting up
full-scale production and another year or two from generating solid
EBITDA. Analysts at Citigroup think the company's recent
capital-raising efforts could be sufficient, but suggest the
company may look to raise money again in 2012 if it is beset by any
delays or can't line up partners. This is the biggest risk to the
stock for current investors.
Shares have lost nearly 30% in the subsequent market pullback after
soaring above $25 in mid-April. They now stand at about $17. Shares
could slip further if the production ramp-up gets pushed out, but
if the company can deliver on its technological promise, sales,
profits -- and the stock price -- will be well higher in a few
Action to Take -->
Newly-public companies often stumble after their first few
quarters, so these stocks surely carry
. But over the long haul, each of these companies is aiming at
large and potentially profitable markets during the next five
years, which could also lead to a major boost in their stock
-- David Sterman
P.S. -- Few investors realize that a 20-year energy agreement
between the United States and Russia is about to expire. This deal
supplies 10% of America's electricity. As broke as our government
is, the situation is so serious that President Obama is asking for
$36 billion to avert this crisis. And Republicans support him.
Here's what's going on…
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.