The IPO market is looking forward to November 15, 2013. Twitter (NYSE:TWTR) will no doubt be a hot stock and should also provide the mass media with lots to talk about. The NYSE even performed a test over the weekend to see if it could handle the expected intense volume.
Twitter is one thing... but the health of the IPO market is another. So how has that market been? What are the top performers? Let's take a look.
IPOs This Year
A simple Google search for IPO stories in the media will result in several links to stories of stocks that have doubled on their first day of offering. To avoid duplication of efforts, here are those names that have more than doubled in their first day of trading.
Noodles and Co. (NASDAQ:NDLS)
Sprouts Farmers Market (NASDAQ:SFM)
The stocks listed above all had a huge pop on the first day and three are currently Zacks Rank #3 (Hold) rated stocks. PBPB is not yet ranked as analyst reports have not yet come out. Having a rank of #3 (Hold) soon after an IPO is pretty common as underwriting banks have to wait a period of time before they can initiate coverage. The Zacks Rank tends to move up when there is a positive revision to estimates and that could take some time.
It is clear that if we have four stocks that have doubled on the first day of trading, the market is pretty strong.
Recent IPO's With High Zacks Rank
Marketo (NASDAQ:MKTO) is a Zacks Rank #2 (Buy) and has been public since late May. That time horizon has allowed analysts a few chances to increase their estimates.
The internet marketing company has had two earnings reports since going public. The first was on July 30 and the company missed that quarter with a wider loss than expected. This has been fairly common on new companies as they have not been able to get the full story to analysts or there is some noise in the first reporting quarter.
Investors easily forgave the company for the 12.7% negative earnings surprise and bid the stock higher by 21.5% in the session following its first report.
The next report was much better. A two cent beat of a 6.9% positive earnings surprise helped the stock move higher in the session following the report.
Xoom (NASDAQ:XOOM) is also a Zacks Rank #2 (Buy) stock that IPO'ed this year. The stock zoomed higher by a healthy 60% on its first day of trading. The online international money transfer service has been public since February 15 and had an offering price of $16 per share.
Since that time, estimates have soared. When the first research reports were out in March, the Zacks Consensus Estimate for 2013 was calling for a loss of $0.24 per share. By July, the estimate had turned the corner to a gain of $0.01 and following a recent report, the consensus is now looking at $0.11.
A very similar trend exists for 2014, with estimates moving from a loss of $0.06 to a gain of $0.08 over the same time horizon, above for the first two estimates. The 2014 Zacks Consensus is now calling for a gain of $0.18 and that translates to an implied earnings growth rate of 63%.
As Twitter comes to the market there should be a lot of fanfare. This will be the hottest issue of the year and will continuously be compared to Facebook (NASDAQ:FB) and its IPO.
Needless to say, the FB IPO was a disaster and caused a great many retail investors to take substantial losses. Over time, the stock recovered and is now well above the IPO price and first trade.
It might be of interest to learn that Facebook is a Zacks Rank #2 (Buy). TheFacebook as it used to be called (at least that is what I learned from the movie "The Social Network") has seen 2 straight positive earnings surprises.
The most recent one came on July 24th and it propelled the stock higher by 31% after investors saw a 44% positive earnings surprise. They also saw a glimpse of how the company plans to monetize the $1B+ investment in Instagram as well.
Buy what will Twitter's Rank Be? As we have seen from other IPOs, it will take some time to get research reports from covering analysts in. Then it will take some more time before they have an opportunity to increase estimates ... so don't be surprised if the company has no Zacks Rank its first day of trading, or even no Rank a month or more after its public debut.