I’ve spilled considerable ink here trashing a handful of upcoming initial public offerings (IPOs). The most notable ones being daily deals company, Groupon (GRPN) and social networking juggernaut, Facebook.
In fairness, the fundamentals warrant it. And so does my experience.
You see, I’ve found that the most hyped IPOs tend to be terrible investments. Why? Because prices run up too far, too fast before everyday investors like us even have a chance to buy shares. And sadly, the only ones able to book profits are well-heeled insiders – hedge funds, mutual funds and ultra-high net worth investors – that were fortunate enough to get an initial allocation.
But all hope isn’t lost. IPO riches are indeed attainable. All we have to do is shun the over-hyped deals and instead focus on fundamentally sound, fast-growing, under-the-radar IPOs.
With that in mind, I want to share two companies that filed to go public in recent months that I’m convinced could be standout performers.
Please note, I’ve evaluated these deals based on my five hallmarks of a “hot” IPO. I suggest you get reacquainted with my criteria before you read on.
Once you do, here’s why you should add the following companies to your “hot” IPO watch list…
~ Brightstar (Proposed Ticker: STAR)
I’ve written ad nauseam about the exploding use of mobile devices and how it promises to be the biggest technology trend ever. Consider Miami, Florida-based Brightstar a “pick-and-shovel” way to play this boom.
Per its IPO prospectus, the company provides value-added services to key participants in the wireless device industry including manufacturers, operators, retailers and enterprises.
Translation: It helps mobile players increase profitability by allowing them to outsource critical operations. Things like distribution, manufacturing, marketing, supply chain optimization, even sales training.
Ultimately, the company’s sales are tied directly to the growth in the wireless industry. And there’s no refuting that the mobile industry is growing. So Brightstar meets our criterion of possessing a “verifiable” growth opportunity!
In terms of age, the company passes muster, too. It was founded 14 years ago. It’s an established (not an unproven) company, trying to rush to the public markets.
Total revenue passes the $50 million threshold identified by researchers at the University of Florida by a country mile. That level of sales is a strong predictor of positive stock price performance. In the first quarter of this year, Brightstar booked almost $1.3 billion in sales.
Last but not least, the company’s profitable. Net income checked-in at almost $18 million in the first quarter.
Keep in mind that roughly 75% of IPOs during the dot-com days couldn’t make the “profitability” claim. And we all know where they ended up – on the trash heap. So simply insisting on profits is an easy way for us to avoid any IPO landmines.
Bottom line: If the price is right, meaning shares begin trading at a reasonable valuation, come on down! Because Brightstar is a no-brainer “Buy.”
~ CyOptics (Proposed Ticker: CYOP)
A trend that goes hand and hand with the increasing use of mobile devices is the amount of data we’re now accessing wirelessly. Put simply, wireless network traffic continues to increase in volume and complexity.
So much so that many industry insiders warn of an impending bandwidth crunch, where there’s not enough capacity to meet demand.
Enter Breinigsville, Pennsylvania-based CyOptics.
As the name suggests, it operates in the niche for optical components – lasers, detectors, transmitters, receivers and modulators – that enables bandwidth in high-speed networks.
Technology research firm, Ovum, forecasts that this segment of the market will almost double in size by 2015 to $10.5 billion. So we have the growth base covered.
CyOptics began operations in 1993. Like Brightstar, it fits the bill as an established firm, not some unproven upstart looking to capitalize on the IPO mania.
Revenue topped $100 million in 2010. We’re covered on that front, too.
And last but not least, CyOptics just turned the corner on profitability. Last year the company reported net income of $11.2 million in 2010, after suffering losses of $19.8 million in the previous year.
The company should file an updated IPO prospectus before actually going public, which will include another quarter worth of financial results. And I expect the trend of profitability to remain intact.
Bottom line: Demand for greater bandwidth is an undeniable fact of life in our digital age. CyOptics stands to be a big beneficiary since its products enable greater bandwidth. So as long as underwriters price the deal fairly, it should prove to be a solid long-term investment.