Quality IPOs should stay on an investor's radar screen.
Initial public offerings with strong fundamentals can become
big winners. So a misstep shouldn't lead an investor to dismiss a
Sports nutrition chain storeGNC Holdings (
) debuted in April 2011. The stock delivered some big gains, but
the most recent breakout failed.
In early July, GNC cleared a 42.05 buy point in a tentative
fashion. The stock had trouble closing above the buy point, and
big volume came just before but not on the breakout. GNC dropped
more than 7% below the buy point July 10 and retreated as much as
12% under the entry Thursday.
Anybody who bought on the breakout should've sold no later
than when the stock was 7% to 8% below the entry.
When a stock fails, some investors take it personally. They
will harbor a grudge against it. Yet, if a stock regains its
10-week line in strong volume, an investor should buy the stock
IBD founder and Chairman William O'Neil discusses such a
development in "How to Make Money in Stocks" on page 19. In 1926,
IBM broke out of a base and failed. Then the stock rebounded. The
book notes: "Very important: After shakeout, if stock comes back
up through 10-week line on even greater volume, you must buy it
GNC has yet to do that, but it's worth watching.
Earnings advanced 26%, 37% and 64% in the past three years.
Revenue stepped up 3%, 7% and 14% in the same years. The Street
expects GNC to grow EPS 38% this year on a 15% increase in
Return on equity, a gauge of financial efficiency, hit 20%
last year, above the 17% minimum associated with elite stocks.
Pretax margin was 12%, a nine-year high.
The number of funds holding shares increased from 201 to 280,
363 and 399 in recent quarters.
GNC's new factor might be demographics. About 43% of its
customers are 35 or younger and 80% are under 55. Since a quarter
of the U.S. population is 20 or younger, GNC could benefit as
that generation rises.
The dividend yield is 1.1%. The company paid its first two
quarterly dividends in March and June.