IPO Candy

Long/short equity, research analyst, ipos, tech
IPO Candy
Long/short equity, research analyst, IPOs, tech
Contributor since: 2010
Company: IPO Candy
I'm not sure this company has the strength to really squeeze shorts. So far management as been adept at helping them more than hurting them...
So glad I bailed on this one after months of lousy stock action. It's not always the case but the way a stock acts tells you something!
I hear you on valuation! Our IV model suggests just $21-26/share but if TEAM gets a P/S multiple like similar recent IPO names then it will trade at $30-35. I can't defend that price in anything other than relative terms.
I disagree however with your view of competition. The IBM/Rational product is pretty far from agile/scrum. Yes they have evolved it but it targets a very different development mindset.
TEAM reminds a bit more of Rally Software which didn't do so well in the public markets and was ultimately acquired by CA. I don't think they ever reached critical mass.
TEAM has some runway to grow into their valuation but the haven't left a lot of juice in the glass for retail investors. We'll see where it opens today.
I don't know this large holder and so have no way to understand how good they are or are not. As you know these guys can also use options to hedge their positions.
But if they are buying it might lock them up. These agreements are not as simple as they appear because windows are dynamic with earnings reports, different quiet period policies, etc.
Still MB looks vulnerable based on their high (and unexplained) expense levels.
Will do! I'm doing an email tomorrow. Should I link to your post here on SA or is there a better place to link to?
We've done work on this one and there might be some weakness with more shares hitting the market.
I don't think their competition is really the big general-purpose outfits like salesforce.com but rather other focused suppliers like genbook.
There are some definite risks here, rather than repeat them I'd suggest reviewing our prior work on the name here: http://bit.ly/1RvxjGp
In general I agree with Mr Dion here that the short term might be to the downside on this name.
Thanks for including our article on Wayfair. Since we wrote it I have noticed that Amazon has discovered online "merchandising" for clothing and I expect they will roll that out for home furnishings as well.
I've read several reports in the last two months, some making the bull case but no matter which side I take I don't believe there is any chance they will reach their target model of 10% EBITDA margins. In the best case scenario it's 4-5%.
Then again as I write this I see people buying up the stock with both hands here just under $43/share. You have to worry that this trade may be too "crowded."
$5/share in value from RACE for FCAU is pretty good. The rest of the company seems way undervalued but can management improve operations and culture there?
These guys should acquire NXT-ID (NXTD) IMO. There's a bunch of new technology coming out that they could really use to establish a beachhead in this "post-plastic" world... (no position)
I have always enjoyed their catalog and their growing array of products. Their stuff is pretty solid, a little pricey sometimes for what it is. I'll be interested to take a deeper look at the story as they get to marketing.
Worth checking out estimize and seeing what they have on it.
If we see Ferrari successful and Albertson's gets out then maybe NMG will follow. They do have a brand and a customer base that could work. Sometimes it feels like these PE firms look at the stock market as a way to find the next bag holders!
Buyer beware always in this market. Somewhat sad state of affairs.
We haven't started working on this one yet. When Square launched years ago they were certainly innovative - the reader generated lots of "oohs and ahhs" but this has since been replicated by PayPal and perhaps leapfrogged by technologies like Apple Pay.
It is early in payments and with EMV/NFC and all the anti-fraud provisions there is lots of moving technology. At a high level I wonder if Square hasn't just missed being able to invest heavily enough in the last two years to keep pace.
Another way to look at the bull case is to figure out who would want to acquire them. Who is the number two or "also ran" to FDC? Or could a second tier outfit like Western Union afford them and then roll everything into the more trendy "Square" brand?
Square hasn't set terms yet so we don't know what price range they will propose. There's no point doing anything until you know what the valuation will be and what type of market conditions we will have when they price. The current market hasn't been too kind but things may improve.
Once they set terms we can run an actual long term model and see where the shares may settle out post-IPO. It's true that popular companies like Square have a greater tendency for a "pop" but it'll all be very clear once the company starts marketing.
These businesses go through a typical lifecycle. AMBA is no different.
See http://bit.ly/1QeL6xY for our writeup and model. (Might be here on SA as well...)
The stock may be reaching some level of being oversold but the type of growth acceleration and margin expansion that drove it before will not be back.
I acknowledge that the IPO was undersold and didn't price well. However I'm looking at overall performance, not the pricing and first day gains. But I agree that I should have selected my words there more carefully.
I didn't expect (let alone know) that Q3 guidance would be a little weak. It could indicate that the thesis of a shift to "good" but not "great" results is already underway and with that a re-rating of the shares.
When revenue growth remains decent but margins begin to decline the stock will have another leg down. From these levels it may be able to establish some kind of trading range for now.
Excellent article on some key points IPO investors need to consider. I wouldn't throw the baby out with the bathwater though. Our database is pushing 1000 recently public companies and while some or many may be unprofitable, lean on stock-based compensation hard and/or insist on this "adjusted EBITDA" concept - many are solid, growing, and profitable businesses.
Even some that are not are creating some potentially life-changing technologies. (I don't think any of the ones you mentioned above are.) That these companies choose and can go public while still in pre-commercial stages is a little surprising to me but the market has accepted it. In the case of drug development the smaller companies have taken over the discovery and approval of new drugs from the large pharma companies who often end up buying them to bolster their own pipelines.
In any event this is a good article to help investors sort out the wheat from the chaff. Although they can be hard to short there are cases where this kind of analysis yields some good opportunities there as well, especially when lock-up agreements expire.
I wonder if the competitors rely on genotypic or phenotypic techniques.
The chairman of the company is wildly bullish and promotional. Probably continues to suck people in. Stock is down but still at 5x sales. So is Blue Buffalo BUFF which came public more recently.
Good article here on this little company. I've been looking into it. Seems like the trend is large and in place. There are still some questions surround ROI of these "NFV" investments but at the same time they seem unavoidable.
On a related note it does seem that the SMB market shift to IP-based solutions is accelerating. I don't have hard data on it but have heard it from several quasi-reliable sources. I think that keeps the pressure on the network owners to move forward with this type of technology.
Glad we never put this one in the Folio. I wonder if at $4.30 it's worth bottom fishing? One has to assume management hasn't executed here so probably tastier fish to fry elsewhere!
Good article. I saw Freshpet present last week and boy they are good and quite bullish. I can see why investors like the story. I wonder about valuation on all these things too. Where I live there are a ton of dogs and three dedicated pet stores within a few blocks - an unleashed (petco), a Bark Palace (private) and the Polka Dot Dog Bakery (private). There has also been an explosion of dog food brands it seems to me. It's a bewildering array. That's where I see danger to Freshpet.
I'm looking forward to getting into the Petco deal once more details like price and share count are available. We need that to do our IV.
It's funny that you're such a satisfied customer but fear competition. I agree though that competition in this segment will be intense. However PLNT is proving that they can generate very attractive margins even at their very low price point. I'm not sure the others can.
Meanwhile our own work on the stock and valuation model is presented here: http://bit.ly/1WGPXNC
Net is the IV comes to $35/share which is very attractive compared to the current price.
Good point on boomers reaching retirement age - lots of them will be on a limited budget but want something decent, clean, and easy.
Personally I think sports will be what surprises on the upside. Good discussion here. At the current price it seems like not much success is priced in. Risk/reward probably better than it's been in a long time.
The health club business is a tough one. It also looks like many have identified this "entry level" class of member and are going after them with similar types of offerings.
There's also something worrying about a model that is based on charging people an "immaterial" monthly membership fee and expect them to make very limited use of the club. After a few months of seeing the $10 on their credit card statement consumers might decide to cancel anyway. Last I checked PLNT makes this difficult by insisting that members have to physically come into the club to cancel. Maybe they have revised this policy. It does make members more "sticky" but probably pisses some of them off too.
The advertising angle brought up here is an interesting one. The PLNT "brand" is not really set yet so they have an opportunity to do something here. It won't be cheap though so how the implement this will be worth watching.
Soul Cycle will be coming out soon and I bet private companies like the one behind the in-home Peloton will be raising money too. The general trends seem favorable.
Wow next year?
Anyway we're wrapping up some work on MBUU (and MCFT too) and these stocks do look undervalued...
I wonder if a better crop of hybrids (even the Porsche Cayenne!) and lower gas prices are making people just less interested in pure electric....
Fitness and better health seem to be trending. Planet Fitness has enjoyed a solid IPO. Spinning has long been popular but there hasn't been a play on it. Soul Cycle should be hitting a sweet spot in the market for their deal. Have yet to dig into it and build a model but the "new models" like this one, CrossFit and Peloton are gaining share in what's a already a big market.
The slow process of conversion to revenue and the currency hits are negatives but are more short-term than long-term issues. On the plus side it would seem that the long process of selling, installing and making operational the insurance products and services suggests they will be "sticky" and hard to unseat by competition. For investors it means "another building year" for a company that needs to prove itself.
The company could be vulnerable to an M&A bid. If I were in this business and saw this product gaining traction with bookings I'd be tempted to pounce now before revenue ramps when I could buy the company cheap.
After listening to the roadshow I thought it was pretty impressive. I do think that they are underestimating counter-party risk because emerging market governments and utilities have problems of their own, including national defaults in some cases.
They talk about FX hedging but I don't know the details of how they implement it and at what cost. They make many promises that I can see investors liking. I'll just be watching this one but it looks solid enough to me as a deal/company. We'll see how it does and where it goes.