• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / U.S. Equity

Rules of the Game: Use Caution With IPOs

Investors should track companies with solid earnings growth, but avoid speculative ventures.
By KATE STALTER Feb 08, 2013 | 12:30 PM EST
Stocks quotes in this article: BCC, XONE, FB, LNKD, KORS, ZTS, PFE, YNDX, ST

The young year has already been a busy one for IPOs. That's understandable as companies seeking capital prefer to sell shares in bullish rather than bearish (or sideways) market conditions, whenever possible. This week, the successful debuts of Boise Cascade (BCC) and ExOne (XONE) were in the forefront.

But use caution with IPOs. In other words, don't get swept up in the hype and the hope of getting into something early. It's very typical for IPOs to show significant gains in their early days and weeks of trading, and then fall below the offer price.

Much was made of Facebook's (FB) retreat, but that type of action is not unheard of. It just usually happens in small, thin stocks that nobody is following.

But Facebook had one thing going for it that many new stocks, including ExOne and Boise Cascade, do not: profitability. In my book, jumping into an unprofitable company, no matter how "hot" the product or service seems, is just a way to court disaster. (Dot-com boom and bust, anyone?)

Don't get me wrong: Stocks that went public within the past 10 or 12 years are often solid growth leaders. But "growth" includes the concept of earnings and revenue gains, which are key elements in a stock's long-term prospects for price appreciation.

One of my proprietary screens that I check every so often is called "Profitable IPOs." This includes companies that began trading since January 2010, so they are among the youngest companies on the market.

Familiar names, including Facebook, made it to this scan, as did stocks I write about frequently, such as LinkedIn (LNKD) and Michael Kors (KORS) .

The $16.4 billion animal-health company Zoetis (ZTS), which was spun off from Pfizer (PFE) last week, has also shown strong gains since its debut, and has been profitable since 2010. In fact, the company had earnings increases of 93% or more in seven of the past eight quarters.

Less well known is Russian search engine and Internet content company Yandex (YNDX) . The company went public to some opening-day fanfare in May 2011. But the stock has struggled since then; it closed Thursday at $24.50.

Its fundamental picture looks significantly better: The company grew earnings at rates ranging from 25% and 140% in the past eight quarters. Revenue increased between 29% and 77% during that time.

Yandex is slated to report its fourth quarter and 2012 results on Feb. 19, before the open. For 2012, Wall Street has pegged income at $0.84 per share, a 40% year-over-year increase. This year, analysts are eyeing earnings per share of $1.13, a gain of another 35%.

This is a volatile stock, and one that's yet to grab hold of any lasting upside traction. It's been more appropriate as a trade than an investment, so I'm not a fan.

Another technically volatile, yet profitable stock is Sensata Technologies (ST), a Belgian-based maker of sensors and other electronic controls that are used in the automotive, aerospace and other industries. Sensata went public at $18 in March 2010. It closed Thursday at $33.72.

The company has been profitable every year since 2009. Growth rates have been erratic over the past two years, but analysts are expecting earnings of $2.13 per share this year, up 9% over 2012. For 2014, that's seen growing 19% to $2.54 per share.

Sensata has a market cap of $6 billion, meaning it's too small to occupy a large slice of a portfolio. However, it could have a role as part of a balanced equity strategy.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Stalter had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity

More from U.S. Equity

As Carnival, Royal Caribbean and Norwegian Sink, Here's When to Dive In

Ed Ponsi
Jun 30, 2022 1:30 PM EDT

These stocks are priced for an industry-wide calamity, but how realistic is that considering their customer base?

Market Trends in Question as Support Levels Breached

Guy Ortmann
Jun 30, 2022 10:02 AM EDT

The near-term is getting tougher to call as each rally has been short-lived.

Epically Bad First Half, Inflation's Origins, Defense Stocks, Seasonal Investing

Stephen Guilfoyle
Jun 30, 2022 7:34 AM EDT

Is Defense recession proof? Not in 'normal' peacetime, but maybe this time.

This FAANG Stock's Technicals Are at a Summer Crossroads

Bob Lang
Jun 29, 2022 3:30 PM EDT

Summer is a time when this name usually gains momentum. Will it this time?

Kass: Untapped Homeowners Equity and Imbedded Gains Will Be a Ballast to Growth

Doug Kass
Jun 29, 2022 3:00 PM EDT

Homeowners equity has more than tripled in the last decade.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • 07:59 PM EDT PAUL PRICE

    Very Good Quarterly Numbers From Bassett Furniture (BSET)

    Bassett Furniture blew right through analysts es...
  • 04:41 PM EDT PAUL PRICE

    First-Half Results - Putrid; Second Half Results - Likely to Be Much Better

    It's great that we're done with June. 2022 mark...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login