initial public offerings (IPOs) trading on American exchanges

Thursday, March 20, 2014

New IPOs - when to buy?

Brand-new IPOs may offer future potential, but they can be tricky to navigate in the short run.

Those that go public with much fanfare often see a big, first-day pop, like LinkedIn (LNKD) (109%) and Twitter (TWTR) (73%), before coming back down to earth. That can make finding an entry tough, since a hot stock could keep shooting higher or drop right after the debut, a la Facebook (FB).

That's why it may be prudent to wait for a consolidation. Some IPOs pause shortly after their debut. A so-called IPO base can be shorter in length than the five- or six-week minimum, respectively, for a flat or cup base.

Michael Kors (KORS) trended mostly higher the first five sessions after jumping 21% its first day, Dec. 15, 2011. It then paused the next three weeks, giving prospective buyers a chance to get in. The first true base didn't start until March. (COUP) surged 88% to 30 from its offer price on March 7. It hasn't done much since, trading mostly between 26 and 31. The Mountain View, Calif.-based digital coupon provider hasn't yet turned an annual profit, though it posted its first quarterly profit in Q4.

Its debut comes nearly eight months after that of rival RetailMeNot (SALE), which rose 32% from its IPO price and is now up more than 30% from that day's close. It had rallied as much as 76%. The company has made money since 2010.

YY (YY), which went public on Nov. 21, 2012, shows the potential of recent new issues. It saw a modest 8% rise in its Nasdaq debut. Shares climbed 35% in the first two weeks before launching into their first consolidation, which spanned seven weeks and offered a first chance for investors.

Another 36% advance ensued before the Chinese Internet stock settled into a six-week cup base, a second opportunity to buy. It cleared its most recent six-week consolidation on Jan. 3 and is up 42% from the buy point.

YY has grown its annual earnings per share the past two years. Earlier this month, it crushed fourth-quarter profit and sales forecasts with triple-digit gains. Analysts expect triple-digit EPS growth to continue in Q1.
The top- and bottom-line performance have helped it attract increasing institutional sponsorship. Forty-three mutual funds and hedge funds took new positions as of Dec. 31, while 23 added to their stakes. Three of the funds owning shares are rated A+.

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