It seems lately, whenever I pen a new article I write about IPOs (see here, here, and here). There is good reason for this. Recently, a numerous amount of companies have gone public with fantastic fundamentals.
New issues that sport huge growth in earnings and sales when they go public normally turn into big winners in the stock market. From Microsoft (MSFT) and Cisco (CSCO) to Priceline.com (PCLN) and Monster Beverage (MNST). Companies that come public with huge growth normally sustain this growth long enough to produce large price gains for early investors.
Today, I want to take a look at four more IPO's that have the proper fundamentals and future earnings expectations necessary to produce large robust gains for investors with an intermediate or long-term time frame.
First up, Ubiquiti Networks (UBNT). Ubiquiti Networks is a San Jose, CA, manufacturer of radios, antennas, and network management tools for RF spectrum service providers.
Ubiquiti Networks EPS growth is on a tear, gaining 233%, 125%, 10%, 148%, 100%, 167%, and 145% the past seven quarters. The driver behind the EPS growth is sales. Sales growth has gained 163%, 155%, 81%, 24%, 23%, 68%, 132%, and 95% the past eight quarters. This growth does not appear to be slowing down anytime soon, with 2012 and 2013 annual EPS estimates for gains of 91% and 19%.
Ubiquiti Networks carries 0% debt to shareholder equity, has a cash flow of $0.55 per share, spends 5.7% of its sales on R&D, and sports a whopping return on equity of 69%. The P/E ratio is currently at 33 in the upper end of its short historical range of 19-36.
Ubiquity Networks is clearly in favor with mutual funds as 91 mutual funds currently hold 99% of the shares in float. The reason there are so few shares is due to management. Management owns 65% of the shares outstanding. This is an extremely solid vote of confidence that management believes the share price is going to move higher. It is always good to see management with a vested interest in its own company.
Next, let's hit the sky with Spirit Airlines (SAVE). Spirit Airlines is a Miramar, FL, provider of point-to-point low fare airline service to and from South Florida, the Caribbean, and Latin America.
Spirit Airlines EPS growth has only recently turned the corner growing 900%, 117%, and 57% the past three quarters. Spurring the recent EPS gains has been sales growth. Sales have grown 14%, 26%, 26%, 56%, 42%, and 27% the past six quarters. This large growth is expected to continue for the next two years with 2012 and 2013 annual EPS estimates for gains of 50% and 27% respectively.
Spirit Airlines carries 0% debt to shareholder equity, has a cash flow of $1.31 per share, an EPS growth rate of 60%, and sports a fantastic return on equity of 48%. The current P/E ratio of 16 is in the upper end of its short historical range of 9-17.
Mutual fund ownership is growing rapidly from 78 to 101 to 148 funds the past three quarters. Mutual funds now own 35% of the current float. Management is also invested in the company's future, owning 31% of the shares outstanding.
Now, let's take a look at a recent Chinese IPO named NetQin Mobile (NQ). NetQuin Mobile is a Chinese developer of mobile security and productivity software that prevents privacy intrusion and data theft.
NetQuin's EPS growth has been stunning to say the least. NetQuin's EPS has grown 150%, 133%, 233%, 133%, 600%, 800%, 275%, and 999% the past eight quarters. This EPS growth is in direct correlation to sales growth, which has grown 130%, 202%, 254%, 323%, 212%, 147%, 110%, and 105% the past eight quarters. This growth is expected to continue in the near-term future, with recently raised 2012 and 2013 annual EPS estimates for gains of 44% and 37%.
NetQuin carries 0% debt to shareholder equity, sports a strong return on equity of 30%, and spends 12.5% of sales on R&D. My data provider MarketSmith currently does not have any information on NetQuin's cash flow. The current P/E ratio of 23 is in the middle area of its short historical range of 8-57.
One tiny flaw with NetQuin is the fact that mutual fund ownership has fallen from 54 to 45 funds the past two quarters. I find this odd, considering how much growth and money this company is producing. If mutual fund ownership grows over the next couple of quarters, this will become a non issue. If it continues to decline, my warning radar will go off and further analysis will need to be conducted.
The good news, however, is that management owns 62% of the shares outstanding. That is an outstanding vote of confidence that they believe the share price will rise. If they did not, they would not own so much of the shares outstanding.
Last but certainly not least, we have our most controversial stock: Zillow Inc. (Z). Zilllow Inc. is a Seattle, WA, provider of online real estate data that connects homebuyers with sellers and mortgage professionals via zillow.com.
Zillow Inc. has recently turned the corner from losing money every quarter to making money the past three quarters. EPS growth the past three quarters has gained 186%, 180%, and 250%. These newfound profits are the results of robust sales growth. Sales have grown 95%, 63%, 49%, 104%, 111%, 116%, 132%, and 108% the past eight quarters. This huge growth is expected to continue well into the future, with recently raised annual EPS estimates for gains of 170% and 130% respectively.
Zillow Inc. carries 0% debt to shareholder equity, has a cash flow of $0.36 per share, and spends 35% of sales on R&D. Currently there is not any information available on return on equity from my data provider MarketSmith.
The biggest controversy regarding Zillow Inc. is the P/E ratio. The P/E ratio is currently at 335 in the lower end of its short historical range of 212-999. This is considered a high P/E to value investors. Unfortunately for them, a historical study going over the greatest stock market winners for the past 130 years, proves that the P/E ratio is completely useless when hunting for powerful big winning stocks.
Mutual fund interest is accelerating, with fund ownership growing from 101 to 137 funds the past quarter. Mutual funds currently own 79% of the float. If Ubiquinet Networks management ownership was impressive then Zillow Inc.'s management ownership is mind boggling. Management currently own 74% of the shares outstanding. Management clearly wants to own shares of its own possible supernova stock.
All of the stocks mentioned above have what it takes to become big winners for long-term investors over the next few years. My own personal trading is a bit more intermediate term. I am a trend follower and only want to be long these stocks when market conditions favor an investment. Currently, the market is in an uptrend and that is my green light to look for entry areas.
Ubiquiti Networks is a volatile stock and buying breakouts--which I prefer to do--is out of the question. I will be looking to get long Ubiquiti Networks on any low volume pullback to the 10-day moving average that is followed by a higher volume bounce off that line. Another area I would look to purchase shares is with a bounce off the 50-day moving average on strong volume.
Spirit Airlines has been perfect, following its secondary offering in January, trending higher the entire time. Currently the stock is consolidating in a nice tight low volume base pattern. A breakout to new highs on strong volume, from this tight base, would be my signal to get long Spirit Airlines immediately.
NetQin Mobile is a volatile chart, like Ubiquiti Networks, and therefore I will be looking to purchase this stock if it can pullback to either the 10-day moving average or the 50-day moving average. As long as volume is quiet on the pullback, a bounce off either of these moving averages would be perfect entry areas.
I am currently long Zillow Inc. from the pocket pivot point buy signal off the 10-day moving average, which came with a breakout through the 50-day moving average on January 11. I also added to the position on March 15, as it bounced off the 50-day moving and produced another pocket pivot point buy signal off the 10-day moving average. I will continue to purchase Zillow Inc. on the way up, off of these key moving averages, until the trend turns lower.
Just because my trading is geared toward the short term does not mean that long-term investors should ignore the above analysis. Long-term investors are urged to dig deeper into the above mentioned stocks, to find out which one or more of these belongs in your portfolio. A little due diligence now can pay off with large capital gains in the future.
Disclosure: I am long Z. I may initiate a long position in UBNT, NQ, and SAVE over the next 72 hours.