While high-profile initial public offerings reached a frenzied pitch the past two years, investors may have felt a bit burnt by buying into over-hyped businesses with potential but lacking sound fundamental. One particular area where this may have been especially true was the blazing hot social media space. But as the buzz of new listings started to fade, the IPO market has somewhat quietly made a huge comeback.
To get a better grasp on the new opportunities in this space, Equities.com spoke with Francis Gaskins, President and Editor of IPOdesktop.com, which has been recognized by major financial media outlets such as Forbes, CNBC, Bloomberg, and many others as one of the best resources for the IPO industry available today. Gaskins is a highly sought-after expert for his insights and opinions as an IPO analyst.
In this week’s interview, we discuss the current state of the IPO landscape, what he looks for when scouting for promising opportunities.
EQ: As the President and Editor of IPOdesktop.com, you are one of the most sought-after experts regarding the IPO market. Can you discuss your background and why you focus exclusively on this space?
Gaskins: I’ve been told that I’m the leading IPO analyst in the country, if not the world, based on 15 years of hardcore IPO fundamental analysis; TV media exposure at Bloomberg, CNBC, thestreet.com and TV platforms; and education including Harvard Business School and Princeton.
When Facebook (FB) priced at $38 the evening of May 17, 2012 I went on both Bloomberg TV and CNBC to talk about the pricing. I said Facebook belonged at $18 in six to nine months. It actually hit $18 three months after the IPO.
EQ: Coming out of the financial crisis from 2007-08, the number of IPOs dried up like much of the rest of the market. Considering the strong start of IPOs so far in 2013, are new offerings making a comeback back now?
Gaskins: Yes, $2.8 billion of new IPOs were filed in March alone. Of the last 100, IPOs only two have declined from their IPO price: The WhiteWave Foods Company (WWAV) and New Source Energy Partners L.P. (NSLP). So it’s a very strong IPO market, including the post-IPO after market.
EQ: The last two years saw a frenzy of tech IPOs such as Facebook, LinkedIn, Groupon and many others, that provided some mixed results and in some cases, even caused backlash toward public offerings. What are some valuable lessons that investors can takeaway from the recent history of IPOs?
Gaskins: In 2011, almost all of the social networking stocks, except LinkedIn (LNKD), topped out in the first 30 to 45 minutes and never, ever saw those heights again.
Small tech stocks recently hit highs in initial trading and then traded off. For example, Marin Software (MRIN) IPOed at $14 on March 22, hit $19.95 the first half hour and now trades around $14.86. Silver Spring Networks (SSNI), which helps equip utilities with smart power grids. Silver Spring IPO’d at $17 on March 13, went to $22.49 right away, and is now back around $17.
Model N (MODN) IPO’d at $15.50 on March 20, 2013, and went to $20.40 right away. It now trades around $18.86.
All three companies had good top-line revenue growth but were also losing money. The current stock market is somewhat forgiving when tech IPOs lose money, but it’s still a pretty short string.
EQ: What are some qualities that you look for when evaluating IPO opportunities?
Gaskins: We look for consistent top-line revenue growth, expanding gross margins, bottom line profits and good cash flow. With tech companies we often find top-line revenue growth, stable gross margins and sometimes not so great cash flow, because the company is investing for the future, often in marketing and sales.
It’s also important to look at how companies in the IPOs’ sector are doing. If the sector is strong, then that’s a positive for the IPOing company.
EQ: Are there recent or upcoming IPOs that you’re really excited about?
Gaskins: Yes, Taylor Morrison Home (TMHC) is expected to IPO next week at a $2 billion market capitalization. Its gross margins are among the highest in the industry, the industry is up 20 percent year-to-date and TMHC appears to be priced at at P/E discount relative to the industry.
Last week, Pinnacle Foods (PF), which owns Best Foods and Duncan Hines, IPO’d and was up 11 percent or so. PF is a pretty boring but stable business. The IPO only went up because it was priced lower than segment competitors. The private equity firm Blackstone (BX) owned 95 percent pre-IPO and wanted to make sure the IPO was a success, because they still own 68 percent of the company and will be sellers at some point.
EQ: How can investors use IPOdesktop.com to better understand IPOs and to capitalize on potential opportunities?
Our mission is to help investors understand the IPO market and to make money. We help subscribers differentiate between good and not-to-good IPOs and also make suggestions about potential aftermarket opportunities.
Almost all of our comments are based on fundamental financial analysis. We’ve always felt that the best way to help investors learn about stock market financial analysis is to treat each IPO as a case study.
Our analytic approach is the same across all companies, all sectors and all industries. IPOdesktop also has an active message board for paid subscribers, both pre-IPO and post-IPO. Any paid subscriber can ask any question.
Read more about Francis Gaskins here.
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