Much of my growth-stock watch list consists of companies that went public within the past decade or so. In fact, other than some large-cap names, the majority of the stocks I track made their public-market debuts even more recently (that is, within the past seven years).
These young guns tend to have several factors in their favor that lend themselves to strong price growth. In most cases, the management team hasn't had time to become tired and jaded; instead, the CEO and his or her team are enthusiastic and energetic. In addition, these new companies usually have a product or service that is in demand, so revenue and earnings tend to grow at a fast clip. Even an established company such as Dunkin' Brands (DNKN), which was taken public by its private equity owners in 2011, often sees double- or triple-digit earnings growth in the years immediately following its IPO.
Dunkin' is among the recent IPOs slated to report its quarterly results next week. As happens every earnings season, we've seen stocks that had been performing well take a tumble on disappointing reports. Earlier this week, I wrote about Mellanox (MLNX), which began trading in 2007. The stock had been consolidating in a fairly normal manner, until it tanked to the tune of 20.5% Thursday, following its third-quarter report.
Dunkin' shareholders are hoping they don't fall into that kind of doughnut hole when the company serves up third-quarter results on Thursday before the bell.
Analysts have pegged earnings at $0.35 a share on sales of $174.10 million. Those would be increases over the year-ago quarter. Dunkin' met consensus expectations in the most recent quarter, and beat analysts' projection in the three quarters prior to that.
Although its technicals are nothing special, the stock has popped up on some of my fundamental screens lately. The stock ended Thursday's session at $32.32, 13% off its June 19 high of $37.02.
Although it closed Thursday with solid support at its five-day exponential line, use caution in the days ahead of a company's report. Again, I'll remind you of Mellanox's chart for a glimpse of what can happen to small- and mid-cap companies that don't meet Wall Street's expectations.
After devouring some Dunkin' Donuts and a latte, you may need to clean up the diet a bit by heading over to newly public nutritional supplement purveyor Vitamin Shoppe (VSI). The New Jersey-based retailer went public in October 2009. It, too, is scheduled to deliver its third-quarter results before the open on Thursday.
Vitamin Shoppe is expected to earn $0.46 per share on revenue of $234.66 million. Both sales and earnings grew at double-digit rates in the past six quarters.
VSI has fared better than DNKN. The shares have advanced 29% so far in 2012, and they finished Thursday at $57.76 -- below the stock's five-day line, but 1.3% above its 50-day average. Weekly trading volume has tapered since the stock attempted a rally in early September. It's not a bad sign when a stock consolidates in lighter trade. Ahead of earnings, it could signal a breather ahead of a fresh uptrend.
While Vitamin Shoppe could be setting up in a bullish fashion, it's prudent to wait for earnings before attempting to enter the stock. If you miss an initial leap, there is frequently a moving-average pullback that will offer an alternate buy opportunity.