3 IPOs That Could Be Tomorrow's Superstars
Did you miss out on the recenthot IPOs for Noodles & Co. (Nasdaq: NDLS) , Fairway Group Holdings ( FWM ) and Stemline Therapeutics (Nasdaq: STML )?
Well, the hits keep on coming. Phillips 66 Partners (Nasdaq: PSXP) , which was one of the looming initialpublic offerings that I profiled last week, surged a hefty 30% in its first day of trading.
If you missed out on these fast starters, fret not. Many other recent IPOs haven't fared nearly as well from their initialIPO price as these big gainers. IPOs sometimes need to simmer for a bit as investors only belatedly get around to checking them out.
Here's a quick look at what the hotmoney may have initially missed but far-sighted investors may soon start snapping up.
|1. Esperion Therapeutics (Nasdaq: ESPR)|
Thanks to the blockbuster success of Lipitor and other
statins, the cholesterol-fightingmarket has always been
seen as a great prize for drug companies. Billions insales
await any drug that can get through the FDA approval
process and surpass the efficacy and/or safety of existing
drugs. Trouble is, a handful of cholesterol drugs have
petered out in clinical trials in the past few years as
their backers realized that the drugs had little chance for
Esperion's prospects look a bit brighter. The company has undergonemultiple Phase II trials for ETC-1002, which has thus far shown that the drug has lowered low-density lipid ( LDL ) levels to below those of existing statins. "The safety and tolerability profile seen to date is favorable and may enable differentiation from current standards of care," notedanalysts at JMP Securities, who carry a $25price target on thestock . Esperion priced its IPO at $14 a share in late June andshares are trading for around $17.
Citigroup ( C ) has an even higher $30 target price, figuring the drug may eventually serve a population of more than 10 million Americans and an $8 billion to $10 billion global opportunity. Before you get too excited,note that many drugs perform very well in Phase II trials but stumble in Phase III trials when testing populations sharply expand. Still, any new cholesterol drug that can stand up through Phase III trialswill indeed get a huge deal of buzz. Such an event is likely more than ayear away.
|2. Nanostring Technologies (Nasdaq: NSTG)|
Seattle-based Nanostring proved to be a tough sell for
itsinvestment bankers: An IPO that was expected to be
priced in the $13 to $15 range ended up launching at $10
due to weak demand, and remains below $10 today.
Yet unlike some development-stage medical companies that go public without approved products on the market, Nanostring, which sells diagnostic equipment to detect cancer cells, already had $24 million sales in the prior 12 months. Analysts at Leerink Swan see that figure rising to $52 million by next year.
To be sure, these are expensive machines, requiring extensive sales efforts. Yet Leerink Swan believes that Nanostring, which sold 127 million units in 2012, will sell more than 350 million units by 2015. That kind of projected growth underpins its $15 price target, which is more than 60% above current levels.
|3. Gogo (Nasdaq: GOGO)|
In-flight Wi-Fi is shaping up to be a solid newrevenue
opportunity for many global airlines, and you can now find
the service on many transcontinental flights. The fact that
less than 15% of airline passengers have chosen to pay the
$10 or $15 fee on any given flight may be seen as a
possible disappointment, and may explain why this IPO has
fallen roughly 25% from its late June $17offering price .
Gogo installs and maintains the communications equipment that airplanes need to deliver Wi-Fi, and the company has lined up a blue-chip list of clients including Delta ( DAL ) , United Continental ( UAL ) and Virgin. In fact, the company controls more than three-fourths of the nascent domestic sky-high Wi-Fi market. And analysts at UBS add that "This dominance positions it to win share among international carriers, a market roughly two times the size of the U.S." GoGo also provides gear to more than a third of all business jets flying across the U.S.
To be sure, the company will see greater competition in the next half-decade as existing contracts with the domestic carriers come up for rebid. That could lead to price pressures, especially if the airlines want to inspire greater adoption of the in-flight Wi-Fi service.
Those UBS analysts see considerable revenue growth andcash flow generation in the years to come for Gogo, despite the competitive concerns, and using their 2015 financial metrics as abasis , have a $20 price target in place, which is more than 50% above current levels.
Risks to Consider: IPOs can perform quite well in a rising stock market but are especially vulnerable to sharp drops in a weak stock market, due to their lack of proven track records and established base of shareholders. Still, thesestocks ' underwhelming debuts implies alot less risk than owning some of this summer's more scorching IPOs.
Action to Take --> The fact that IPOs like these have not raced out of the gate might highlight somered flags, so extensive research is necessary. It may be in your interest to await their upcoming quarterly releases, at which time they will hold their first deep conversations with the public.