Among the biggest losers in Tuesday's early trading are
Shuffle Master (Nasdaq:
Palo Alto Networks (Nasdaq:
Navidea Biopharma (Nasdaq:
By the time
all fell out of bed after much-hyped initial public offerings
(IPOs), it was easy to dismiss this corner of themarket as "all hat
and no cattle." Yet 2012 has also brought forth several other young
companies that appear to possess impressive long-term growth
prospects. In recent weeks, I noted the stellar quarterly results
from recent IPOs
. And now you can add
Palo Alto Networks
to the mix.
Palo Alto, which makes network security software, appears to
have built a robust technology platform, if customer adoption is
any guide. In its first quarter as apublic company , Palo Alto
delivered an 88% jump in sales from a year earlier, to $76 million.
And a modestprofit exceeded the consensus forecast of break-even
results. Palo Alto, which was founded less than 10 years ago,
already has 9,000 corporate clients and controls 3% of the global
networkfirewall market, and analysts at Lazard see that figure
rising to 5% by 2015.
Still,shares are dropping more than 7% in today's trading. Blame
it on profit-taking. Palo Alto's shares, which opened for trading
in the low $50s in late July, moved up roughly 40% in the six weeks
prior to Monday night'squarterly report . The company's (pre-drop)
$4.8 billionmarket value implied that the Palo Alto would need to
deliver scorchingly good results to keep this stock moving yet
Today's sell-off is not a buying opportunity. That's because
investors need to digest the fact that growth -- while expected to
be quite impressive -- will start to slow, simply because it's hard
to keep expanding sales at a nearly 100% pace. Of equal concern,IPO
investors have begun to fixate on lock-up expirations, and Palo
Alto's insiders will be freed to unload large blocks of stock this
coming January. Lastly, the ever-rising market may reverse course
soon enough, leaving especially pricey stocks (Palo Alto trades at
10 times projected fiscal 2013 sales) vulnerable to a sell-off.
Investors may get a second stab at this high-growth company at a
notably lower stock price down the road.
Shuffle Master's hiccup
After a number of estimate-topping quarters, casino equipment
announced a second consecutive subpar quarter on Monday evening,
pushing shares down more than 4% this morning. Yet this may be a
case where less is more. Shuffle Master'searnings per share trailed
the 20-cent consensus forecast by two cents largely because the
company is spending heavily to roll out new products for casinos by
the end of the year.
Toiling in the shadow of industry giant
Bally Technologies (NYSE:
, which has a 150% larger market value, Shuffle Master is actually
seen as one of the industry's top innovators. The company has a
knack for developing new table games and other gear that often end
up being copied by the competition.
Analysts at KeyBanc consider Shuffle Master to be "our favorite
small cap gaming name and remains one of the best ways to
participate in the expansion of gaming around the globe. Its
diverse product line and strong IP portfolio allow it tocapitalize
on opportunities in every gaming jurisdiction." Their $21price
target , nearly 50% above current levels, assumes that shares will
trade up to 10.8 times forwardEBITDA , right in line with this
stock's historical average.
Another volatile biotech
Navidia Biopharma is today's biotech blow-up du jour. The company
announced on Monday evening that the U.S. Food and Drug
Administration is not pleased with Navidia's contract manufacturing
partners. The FDA also suggests the company do a better job of
ensuring quality control ahead of an imminent possible approval of
Lymphoseek, which helps locate lymph nodes in cancer patients.
Shares of Navidea had risen above $4.50 in late July on hopes of
a late 2012 launch for Lymphoseek, but shares are now down nearly
50% since then on this setback. Notably, this is not a rejection of
the company's device -- it should be seen instead as a delay.
Analysts at Think Equity still see Navidea garnering $130 million
in sales by 2016, which means the entire company is now valued at
just 1.5 times that figure. That's pretty cheap for a new medical
device company -- and for patient investors, this stock could
easily move back above the $4 assuming the FDA concerns are
addressed over the next six to nine months.
Action to Take -->
Navidea is clearly a speculative play because the FDA can
keep stalling Lymphoseek's launch until it is satisfied that
production processes are up to snuff. Still, this seems like an
overreaction. Shuffle Master has a solid long-term track record in
the casino industry, and has always produced a profitable trade
when it temporarily moves out of favor.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.