A fair number of initial public offerings (IPOs) have flourished
in this choppy market . Indian travel site
MakeMyTrip (Nasdaq: MMYT)
, up as much as +66% in its first day of trading Thursday, and
rental housing software firm
RealPage (Nasdaq: RP)
, up +30%, are two of the latest examples.
But woe be to any new
that falls out of favor. If an
moves below its offering price in short order, it can quickly be
forgotten -- that is, until value investors start to show interest
while searching for a bargain. These broken IPOs can stay down for
a while, but for long-term focused investors, this can be a fertile
area for further research.
As the accompanying table shows, April 22nd is a day that will live
in infamy for this group. Four of the seven lagging IPOs went
public on that star-crossed day. (As a bit of trivia, six stocks
went public that day in all, the highest one-day amount since
Company Name (Ticker)
IPO Date (2010)
Below is a closer look at a few interesting names from the list…
Mitel (Nasdaq: MITL)
When we last looked at Mitel in early June in a previous survey of
poorly performing IPOs, I noted that shares seemed very cheap at
five times next year's EBITDA. [
See These 'Broken' IPOs May be Worth another
] Despite that rock-bottom valuation, shares have fallen
further, making this one of the worst IPO performers of the past
As I noted back then, Mitel's customer base of small to
medium-sized businesses meant that sales would likely only rebound
once an economic expansion spread across many sectors. Sure enough,
fiscal (June) fourth quarter revenue grew just +1% from the prior
year. Yet that stalled revenue base still proved to be profitable.
On a full year basis, this provider of telephony systems posted
roughly $50 million in
Mitel also recently admitted that sales remain a bit weak, and
management lowered fiscal first quarter sales guidance by about -3%
to around $160 million. That's right where sales have been stuck
for the past five quarters. The company should generate solid
profits off of that sales base, but investors will clearly stay on
the sidelines until growth is in evidence.
Motricity (Nasdaq: MOTR)
At first glance, this should have been a hot IPO. Motricity was an
early pioneer in the field of mobile phone data services. The
company works with most of the major wireless service providers,
to help support and deliver phone applications. But considering the
explosive growth seen in the field, investors may have been turned
off by the fact that Motricity's top-line is only growing at a +10%
to +15% rate.
But analysts at Needham argue that Motricity's best days are still
ahead. They expect sales to rise nearly +30% next year as many of
its projects come to fruition and the company is better able to
recognize revenue against those contracts. And with a fairly fixed
cost base, the company should show even more impressive bottom-line
Sure enough, just-released second quarter numbers show that EBITDA
doubled on a sequential basis and should rise a bit further in
coming quarters as well. Needham's Mark May sees shares rising to
$11 -- nearly +40% above current levels -- once investors come to
see the steady and rising
that the company will likely generate throughout the coming year.
If you're looking to play the smart phone opportunity, Motricity
looks like a stock for further research.
Smart Technologies (Nasdaq: SMT)
Intel (Nasdaq: INTC)
as a backer and a successful 13-year track record in online
collaboration software known as white-boarding, you'd think this
$660 million IPO would have found favor with investors. But perhaps
the deal was simply too large for investors to digest, which may
explain why the shares opened weakly and have been under their IPO
price ever since.
White-boarding uses the Internet and software such as PowerPoint to
draw and manipulate figures on the screen. It's a lower-cost
approach than some of the more sophisticated touch-screen oriented
collaboration software tools. The company's main suite of software
has found a solid following; helping push annual sales past the
$600 million mark in the
ending this March. Equally impressive, net profit margins exceed
20% and could rise even higher if the company can boost annual
sales toward the $800 million mark by next year, as analysts
Smart hopes to boost
in the education, government and corporate markets. Yet in the
near-term, the company faces some real pressures. Education budgets
are being slashed, as are budgets in the government and corporate
sectors as well. So after a solid run of growth while operating as
a private company, Smart may be seeing some real headwinds now that
it's public. Those headwinds are unlikely to last too long, as
white-boarding is seen as a real
booster. Perhaps shares will find new favor when the company
releases quarterly results after the markets close this afternoon.
Action to Take -->
These stocks have moved out of the IPO spotlight and off investors'
radars, making it a fine time to study their quarterly results and
see if the shares have been unfairly punished. Mitel won't likely
rebound before 2011 or 2012, but Motricity and Smart Technologies
could rebound quicker if the companies can deliver on expectations
of strong profit growth.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.