I've been looking at the 2010 initial public offerings (IPOs)
that have doubled in value -- or more -- and found a name poised
for even more upside and another one that now looks vastly
Pricing anIPO is tricky. Bankers need to price a deal low enough so
it can garner strong demand. But price it too low, and the company
will complain that it could have raised a lot more money for
theshares offered -- especially if the stock zooms higher in
subsequent trading sessions. In the table below, some of these
companies were clearly underpriced to start with, while others were
able to make a strong impression well after theIPO was
Market cap. ($M)
2011 sales growth rate
||$36.45 to $7.34
||$62.80 to 12.10
|HiSoft Technologies (
||$33.47 to $9.98
||$27.24 to $9.61
||$41.75 to $8.23
||$34.19 to $12.12
||$50.00 to $25.57
||$29.25 to $14.00
|Oasis Petroleum (OAS)
||$32.56 to $13.88
|Vera Bradley (VRA)
||$41.01 to $22.00
ThisIPO meandered out of the gate, trading sideways for more than
four months, and then took off like a rocket. In just three months,
investors that boughtshares under $10 in early November are sitting
on a 250% gain. The company provides dedicated servers that handle
all manner of voice traffic, mostly for enterprises. Business
certainly looks solid: Broadsoft has blown past estimates for each
of the past two quarters and analysts now think sales can rise 25%
this year, while profits may surge more than 80%.
This is clearly a case where momentum has carried this stock well
past the range in which it deserves to trade. For starters,
competition is intense from the likes of China's
Acme Packet (Nasdaq:
. Huawei in particular undercuts Broadsoft on price by a large
, so Broadsoft may start to see more substantial pricing pressures.
appears to be gearing up to make a major push into Broadsoft's
market as well.
Second, Broadsoft is heavily tied to
, which is rolling out its FIOS Service. The state-of-the-art FIOS
service has been a hit, reaching 40% penetration in some markets.
Yet Verizon has clearly plucked the low-hanging fruit and growth
rates seem bound to slow.
Analysts will roll out their 2012 forecasts when Broadsoft releases
its 2010 fourth quarter results, which is when I expect to see
growth-rate projections start to cool. That's because the whole
market is only growing 10% and even if Broadsoft continues to
takemarket share , then the top-line is still likely to grow by
about 20% or less in 2012.Earnings per share (EPS) may rise from a
projected $0.56 in 2011 to around $0.80 in 2012, butshares trade
for more than 40 times that projection. All it takes is one quarter
where Broadsoft fails to surge past forecasts and the forward
multiple would shrink by a significant amount.Shares , which
currently fetch $35, would move back to around $25 once the reality
of slowing growth sets in.
Three weeks ago, I noted this was
one of the most heavily-shorted stocks
in the market. As I wrote then, "the company's $4 billionmarket
value likely overstates the potentialcash flow the company will
squeeze out of its (rare earth) mines in coming years." That still
looks to be the case.
This producer of solar wafers likely skyrocketed for a pair of
reasons: investors were bearish on solar stocks at the time of its
May 2010IPO , forcing underwriters to cut the price. Just as
important, the company delivered white-hot results in subsequent
that had run too fast up to the $40 mark back in November now trade
for a more reasonable $27 -- a solid entry point if you missed the
first run in this stock.
Ironically, the share price pullback has come even as management
has taken guidance up yet higher. Back in November, analysts
thought Jinko would earn roughly $4 a share in 2011.EPS above $5
now looks more likely to happen, translating into a
price-to-earnings (P/E ) multiple of just five.
The key to JinkoSolar's success is its very low-cost structure.
That means the company can stay profitable if the solar industry
experiences a slowdown and the company can maintain
industry-leadingprofit margins when demand and pricing are strong.
Gross margins currently exceed 30%, which is very impressive in
such a commoditized business.
This is never going to be a high multiple stock, as the company's
most impressive growth spurt has likely passed. Yet over the
long-term, single-digit top-line growth looks attainable,
withprofit growth a tick higher. If shares traded up to just eight
times projected 2011 profits, then shares would move right back to
the 52-week high of $41. That's a 50% gain.
This company went public just two months ago, quickly zoomed from
the $27 offering price to $40, and has subsequently come all the
way down below the point where it ended its first day of trading.
Youko.com is aiming to become the YouTube.com or Hulu.com of China,
and has already built a very impressive roster of content. The
company now controls roughly 40% of the Chinese online video
market, according to Goldman Sachs. And unlike YouTube, Youko has
aggressively pursued advertising from the beginning.
Yet it's still a high-cost business, and the company may not
generate profits until 2013. That's why it's hard for me to get
overly excited about thebusiness model , unless Youko can start to
generate accelerating sales and shorten the time frame to get into
the black. Goldman Sachs believes the company will be wildly
profitable by the middle of the decade, but most investors are
appropriately taking a wait-and-see attitude, especially since
YouTube.com, the clearest analogue, is said to remain unprofitable
despite its massive heft. This is certainly a stock worth watching.
Action to Take -->
IPOs that deliver strong quarterly results can quickly become
momentum stocks, as is the case with Broadsoft. A lofty valuation
means that the company can't afford any missteps. By contrast,
expectations for JinkoSolar appear too low and the recent pullback
makes the stock much more appealing.
-- David Sterman
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.