Playing Aesop with IPOs

 | Mar 15, 2012 | 1:18 PM EDT
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Slow and steady will win the aftermarket race. I am talking about two deals that came today, two very different IPOs. One mad you a lot of money if you got in and one that could make you a lot of money if you didn't

This morning Demandware (DWRE), cloud play on Internet commerce, and Allison Transmission Holding (ALSN) came public. I had told you to do your best to get into Demandware because the space is hot and this could be the next (CRM) of Internet commerce. The price talk was $12 to $14 and I said that it seemed reasonable, even though it is losing money, to pay up to $16 because then it would be at 5x to 7x sales, which is as the high end of the range of similar IPOs in the space.

Today it was priced at $16 and opened at $25, more than 10x sales, an absurd level, immediately the most expensive stock in the sector.

Allison Transmissions, a company that is cash-flow positive on the other hand, came public at $23, opened around there and then fell a dime below it. Here's a company, spun out of General Motors (GM) and purchased by a private equity firm that has a tremendous franchise in automatic truck transmissions, a growing area in a growing cohort. Don't forget we like Cummins (CMI), a truck titan that hit a 52-week high today and we know that the truck cycle is very robust. When I interviewed Lawrence Dewey, the truck industry veteran CEO for Allison, he said that despite the tremendous revival in the truck business, the turn's only in the fifth inning, not of a pre-season game but of the real deal.

We know also from our work on the natural gas trucking industry and the fill-up station businesses of Westport Innovations (WPRT) and Clean Energy Fuels (CLNE) that tons of trucks are being bought to comply with new emissions rules. We also know that Allison offers an automatic truck transmission that is taking share away from Wabco (WBC), which in itself is a very good company.

Now, Demandware is one of those companies that I hope you were lucky to get in at $16, but I think has now reached a level where I cannot possibly tell you to hold on to it. I think that the register must be rung and the stock cannot and should not be bought in the aftermarket.

Allison, on the other hand, represents genuine value and the fact that it didn't go to a premium allows me to tell you that this is a terrific play right here on the resurgent truck business.

We're invoking that stock sage Aesop here, the tortoise that is Allison now has it all over the fast-starting hare. Sure, if you include the first-day performance, the rabbit wins. But going forward, I'm taking the turtle. I like the long-term stock prospects of Allison much more at this point than Demandware.


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