IPOs Are Dead, Dude
Last week should have been a great week for consumer-facing debutantes.
Watching stocks soar -- posting their strongest weekly gain in nearly three years -- should have been a fire-starter for the handful of U.S. companies that have gone public this year.
After all, there haven't been too many consumer stocks that have been able to pull off successful IPOs this year. If these underwriter-vetted survivors are now facing an environment of buoyant share prices and optimistic economic news, why shouldn't they have fun at the party?
Well, it didn't exactly play out that way. Let's go over six recent IPOs that actually bucked last week's 7% climb to post negative returns.
|Francesca's Holdings (NAS: FRAN)||$16.00||(16%)|
|Teavana (NYS: TEA)||$16.65||(12%)|
|Zipcar (NAS: ZIP)||$15.16||(10%)|
|Skullcandy (NAS: SKUL)||$13.86||(8%)|
|HomeAway (NAS: AWAY)||$25.94||(3%)|
|Zillow (NAS: Z)||$21.88||(2%)|
Source: Yahoo! Finance
I guess folks just aren't into that new stock smell anymore.
At the right place, but at the wrong time
These six companies managed to go public in 2011 with some pretty compelling stories to tell.
Francesca's Collections is a fast-growing chain of boutiques. Unlike many cookie cutter apparel shops, Francesca's stocks its stores with a broad assortment of trendy clothing and accessories items that it then sells in limited amounts. The strategy helps keep lead times short, but it also encourages frequent visits to its perpetually changing racks.
Teavana is the only national retailer dedicated entirely to tea. As a "heaven of tea" Teavana's nearly 200 stores carry more than 100 varieties of loose leaf teas. This is the kind of stuff that you can't get at your local grocer and will blow away your friends and family when you have company over. Teavana's sales, comps, and earnings are going through the roof.
Zipcar is leading the auto-sharing industry, providing folks in densely populated cities and college campuses with access to cars by the hour. Gas and insurance are included, freeing drivers from both the high costs of automobile ownership and the stiff extras that conventional car rental chains typically charge for.
Skullcandy makes headphones, aiming for bold designs that appeal to young audio buffs and extreme sports enthusiasts. Offering over-the-ear headphones and earbuds that double as street art fashion statements gives buyers of smartphones and portable media players a way to add personality to their otherwise fashionably bland devices.
HomeAway runs HomeAway.com and VRBO.com, the top two websites for folks looking to rent out their homes and vacation properties to other travelers. The value proposition of entire homesteads at prices rivaling cramped high-end hotels is resonating with vacationers. HomeAway's revenue soared 37% in its latest quarter.
Zillow runs a popular website -- with an equally sticky smartphone app -- that offers estimates of home values and suggested monthly rental rates for most of the houses in the country. Conventional real estate websites are sputtering, but Zillow's popularity has been explosive.
An IPO is a terrible thing to waste
There may be a few good reasons for investors to steer clear of faltering rookies.
One problem is that many of these companies are scaling back their IPOs, only to dilute the market with larger secondary offerings a few months after going public. We saw corporate-minded social networking site LinkedIn (NYS: LNKD) do this last month, flooding the market with a float-padding secondary offering just six months after its successful exchange introduction.
New stocks are also unproven performers. We really don't know how well they will stand up consistently against analyst projections until we see them take batting practice for a few quarters.
Finally, insiders at companies going public often have lock-up provisions that prevent them from selling immediately after an IPO. They have to wait several months to sell their shares or executed options. The fear here is that insiders will hit the market with sell orders after a strong initial run. This final point doesn't necessarily apply here, since just one of the six companies -- Zillow -- is still trading for more than its IPO price.
Putting my money where my IPOs are
These six companies are quality investments. As hard as it is to go public these days, these six stocks managed to go through the painstaking process of wooing investors and early investors to pull off their IPOs.
Ignoring them during last week's rally for a lack of familiarity is a mistake for most investors -- but an opportunity for you and me.
As part of our CAPScall initiative for accountability, I'm initiating a bullish call on all six stocks in Motley Fool CAPS. Wall Street doesn't seem to care about these companies, but dig a little deeper to discover their compelling stories and heady growth trajectories.
Last week's losers will be tomorrow's winners.
At the time this article was published Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Motley Fool owns shares of Zipcar.Motley Fool newsletter serviceshave recommended buying shares of HomeAway, Zillow, and Zipcar. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.