The IPO market has been red hot lately with a handful of new issues rallying in the last two weeks to their best levels as a publicly traded company. The overall market strength is one reason, but it is also investor's appetites to consider new publicly traded companies during a modest recovery. (For related reading, see Investing In IPO ETFs.)
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The First Trust IPOX 100 Index ETF (ARCA:FPX) is sitting at its best level since it began trading in early 2006. The ETF tracks an index composed of 100 recent IPOs and is a solid benchmark for the sector.
Four of the recent IPOs that caught my eye and are in varying sectors are discussed below.
Bazaarvoice (NYSE:BV) provides social commerce solutions through a software-as-a-service platform that allows its clients to analyze their products in the social network and online. The stock closed out its first day of trading (2/24) at $16.51 and was recently trading at $18.75, its best level ever. Like many technology companies that go public, BV has yet to turn a profit. Considering the stock is trading at four times revenue, the company is far from undervalued.
Brightcove (Nasdaq:BCOV) provides cloud-based solutions and services for publishing and distributing digital media to internet-connected devices. The stock closed its first day of trading (2/17) at $14.30 and has since run up over 50% as investors search out new cloud computing investments. With more companies in a variety of industries expanding their content to mobile internet-connected devices, BCOV could be poised to be a big winner.
Cempra (Nasdaq:CEMP) is a clinical stage biotech company that focuses on developing antibiotics for use in the treatment of bacterial diseases. The company raised $50 million and is priced at $6 per share. After closing its first trading day up six cents at $6.06, the stock began its run to $8.05 over the next month. The company is losing money and is a risky junior biotech firm, however the chart is intriguing and the stock could be one to watch.
U.S. Silica Holdings (NYSE:SLCA) produces and sells various silica and industrial mineral products that are used in everything from extracting oil and natural gas from the ground to plastic products. Within the energy industry, the company's products are used in a process called fracturing that involves extracting oil and natural gas from the ground. SLCA is one of the few IPOs that already have solid earnings established. The estimates are for earnings of $1.38 in 2012 and $1.96 in 2013. The company trades with a forward P/E ratio of 11, based on 2012 estimates. The stock has above-average growth as well as numbers that show it as a value play.
The Bottom Line
The number one risk is a lack of a track record as a publicly traded company for new initial public offerings. Not only will earnings be released each quarter to new shareholders, there is also new expectations put on the companies. From a technical perspective, it is difficult to analyze the charts with limited history. My best advice is for investors to proceed with caution and possibly consider the ETF to lower the company-specific risk of an individual stock. (For more, see How To Pick The Best ETF.)
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At the time of writing, Matthew McCall did not own shares in any of the companies mentioned in this article.