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Learning from 2011’s IPOs

May 9, 2012

Stock of the Day

Beyond a doubt, 2011 was the year of the initial public offering (IPO).

And, while the volatile summer months pushed several big names under water, a few companies sprinted out of the gate and haven't lost their momentum yet. As we near the much-anticipated Facebook IPO (which is scheduled for next Friday), let's take a look back at the past year's biggest successes and failures to see if we can learn from this experience.

As always, a helpful resource in evaluating a company's fundamental health is my Portfolio Grader tool. However, in dealing with newly-launched stocks, there is a slight catch. Because much of my grading system centers around earnings data, I only include stocks that have released at least four quarters of operating results. This is so I can nail down the most accurate grade for each stock. So, while some of these newly-minted stocks have "earned" their right to be featured in Portfolio Grader, we'll have to wait a little longer for the others.

One of the year's hottest IPOs was LinkedIn Corp. (LNKD), which premiered on May 20, 2011. Within the first trading day, the stock skyrocketed 109%. Since then the stock has consolidated a little, but still remains a hefty 36% above its initial price. LNKD is not currently listed in Portfolio Grader but it will be added in the coming weeks because we are approaching its one-year anniversary for its IPO.

On the flipside, one of the biggest disappointments for 2011 was another Internet Information Provider: Groupon Inc. (GRPN). This stock made its debut last November and was touted as the largest U.S. web IPO since Google. But, just a few weeks after going public, the stock tanked 20% as large institutional investors bailed on GRPN. The stock has continued to decline since then and is trading 63% below its launch price.

In addition to LinkedIn and Groupon, we had a number of high-profile IPOs spanning the tech, travel and consumer products industries. Let's see how these companies have fared since then:

Company

Ticker

Industry

IPO Launch

% Gain/Loss

Groupon Inc.

GRPN

Internet Information Providers

4-Nov-11

-63%

Pandora Media Inc.

P

Radio Broadcasting

17-Jun-11

-55%

Skullcandy Inc.

SKUL

Industrial Electrical Equipment

22-Jul-11

-41%

Tevana Holdings Inc.

TEA

Farm Products

28-Jul-11

-31%

Zillow Inc.

Z

Business Services

20-Jul-11

-28%

Zynga Inc.

ZNGA

Internet Information Providers

16-Dec-11

-27%

Dunkin' Brands Group Inc.

DNKN

Restaurants

29-Jul-11

29%

LinkedIn Inc.

LNKD

Internet Information Providers

20-May-11

36%

Spirit Airlines Inc.

SAVE

Major Airlines

27-May-11

93%

Additionally, three of last year's IPOs have been officially trading for 12 months, so they have been newly added to my PortfolioGrader Tool:

Company

Ticker

Industry

IPO Launch

% Gain/Loss

Portfolio Grader

Zipcar Inc.

ZIP

Consumer Services

11-May-11

-65%

C

GNC Holdings Inc.

GNC

Drug Stores

11-May-11

100%

A

Boingo Wireless Inc.

WIFI

Information Technology Services

11-May-11

-14%

C

From these data, we can see that while IPOs are great for drumming up investor interest, there is plenty of risk to go around. As for me, I like to stick to companies that have proved their mettle by posting stunning earnings announcements, so I don't get caught up in the frenzy.

In the meantime, I'll be keeping a close watch on any developments with the Facebook IPO, and I'll be sure to send you a "notification" if I uncover anything big.

Until then,

Louis Navellier

Louis Navellier

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