This Week's Tech IPOs Will Set the Tone of Things to Come

by: SA Eli Hoffmann

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

IPO Investors See Busier Week; Tech Comes Back

  • Summary: Following a tepid summer, IPO investors have a busy week ahead of them. Three of the week's 8 new offerings are tech: DivX Inc. ((DIVX) online video compression software), Riverbed Technology Inc. ((NASDAQ:RVBD) network infrastructure appliances), and CommVault Systems Inc. ((NASDAQ:CVLT) a former Lucent Technologies Inc. (LU) unit; data management software). Analysts say the way these IPOs play out should be a good gauge for tech IPOs for the rest of the year. So far IPO tech offerings have been weak; their 5.6% average one-day return is 1.6% below other sectors; volume is down 15% compared with 2005. Other IPOs this week: Hawkeye Holdings Inc. ((HWY) ethanol producer), Warner Chilcott Ltd. ((NASDAQ:WCRX) pharmaceuticals), and Home Diagnostics Inc. ((HDIX) glucose monitors). Hawkeye's deal comes after months of poor performance by two other new stocks in the industry; a positive reception by investors would be notable. Warner Chilcott's offering, which aims to raise up to $1.34B, would put it in the same category as MasterCard Inc.'s debut in May. Home Diagnostics is a rare find among medical-device IPOs this year; steady profits, gross margins of 60%, and a health specialty that is expanding: diabetes monitoring.
  • Comment on related stocks/ETFs: A total of 25 tech stocks IPOed so far this year. The last: Quimonda (QI) on Aug. 8. Techwell (TWLL), a fabless semiconductor company that designs, markets, and sells mixed signal integrated circuits for video applications in the consumer, security surveillance and automotive markets, put in the group's strongest performance (up 56%). Other strong newbies: WNS Holdings (NYSE:WNS) +31%, Systems Xcellence (SXCI) +26%, and QI +25% (in just over a month). Taking up the rear we have (TRFC) -63%, Vonage (NYSE:VG) -54%, and Ascent Solar Technologies (NASDAQ:ASTI) -50%. Justin Hibbard spends some time analyzing the DivX offering. Jonathan Liss takes a look at Hawkeye's IPO in the face of lackluster performances by two other Ethanol producers that went public this year. Evelyn Rubin gives investors comprehensive background information on all of this week's IPOs. Don't forget Seeking Alpha's ongoing coverage of the IPO scene. Some traders feel gaining a solid understanding of IPOs and learning how to trade them is the #1 edge a person can have in the market. And why not? With an average 7% one-day return, savvy investors (who follow strict risk guidelines), and have the inclination to do the research and pre-invest, stand to make nice short-term gains. The less savvy, though, stand to be sheared.

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