2015 was a rough year for IPOs, with many new offerings dropping far below their offering price. It isn’t very hard to name IPOs from previous years sitting at 52 weeks lows. Stocks such as Twitter (TWTR - Free Report) , GoPro (GRPO), AliBaba (BABA - Free Report) , and FitBit(FIT - Free Report) were all very popular names that investors have bailed on.
It is almost impossible to find the IPOs from last year that will turn into a good investment this year.
In some cases, such as Facebook (FB), an IPO can get cut in half before Wall Street realizes the full potential.
The difficult part is filtering through the noise and picking out IPOs that have strong potential to grow.
What Is An IPO?
Below I’ve compiled a list of 2015 IPOs that have either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). These are stocks that analysts are looking to meet or exceed earnings expectations, which help us separate the good IPO from the bad IPO.
Additionally, the recent sell off in the markets have created depressed stock prices, that don’t accurately reflect the fundamentals. This creates opportunity in young companies to get in early, at a cheap price.
Shake Shack (SHAK - Free Report) is a popular new restaurant and a Zacks Rank #2(Buy).
The burger company is down to $36 a share, over 60% from its 52 week high of $96.75. Valuation is an issue, as the company sports a $500 Million market cap with an 84.84 Forward P/E and a 3.09 PEG. Promising growth is what investors are clinging to as the stock holds a Zacks Style Score of “A” for growth.
Estimates for 2016 have risen 26% in the last 90 days, as the consensus has gone from $.30 to $.38.
More recently, next quarters estimates were hiked 40%, showing the hope for a possible beat in the upcoming quarter.
Pressure on IPOs and the overall market has brought Shake Shack down to an attractive area for entry before earnings. Furthermore, the company has been assaulted with short sellers, with 50% of the float being short.
An earnings beat could cause a massive short squeeze and set up a new long-term trend.
Ferrari (RACE - Free Report) is a Zacks Rank #2 (Buy) and a company that designs, manufactures and sells sports cars. Most of us will never have Ferrari of our own, but anyone can buy a piece of the company right now.
IPO Valuation Model
The Ferrari IPO debuted at $60, 15% above its initial-public-offering price of $52. The stock now currently resides around the $40 level giving investors a 24% discount to the offering price.
Like most IPOs, Ferrari has fallen out of favor during the recent market downturn.
However, analysts are raising estimates for 2016, with the consensus rising 2.2% over the last 60 days.
Planet Fitness (PLNT - Free Report) is a Zacks Rank #2 (Buy) that franchises and operates fitness centers throughout the U.S.
Basics of private and public:
and Canada. The IPO priced at $16 a share and has treaded water since, currently sitting at the $14.50 area.
The country faces an obesity epidemic, with over 72 million Americans clinically obese, causing gyms to become more popular.
From 2000-2014, gym membership grew 64% and continues to trend upwards. The fifty largest companies control only about 30% of the market, showing room to grow market share among the larger companies. Planet Fitness has a great opportunity to do just that, thus growing into their Forward P/E of 25.30.
Short sellers are betting against the company with almost 22% short the stock.
If Planet Fitness can meet or exceed consensus estimates, we could see a multiple percentage move higher in a short amount of time.
Wingstop (WING - Free Report) is a Zacks Rank #2 (Buy) that franchises and operates restaurants with a focus on, you guessed it, chicken wings.
The Dallas based company has 800 locations in the United States, Mexico, Russia, Singapore, the Philippines, Indonesia, and the UAE.
The stock currently sits at $24, above its offering price of $19 a share, but over 30% below its high of $35.96.
More money-losing companies than ever are going public, even compared with the dot-com bubble
However, analysts look at the stock favorably, with seven upward revisions over the last 60 days. Within that time frame, consensus estimates have raised an average of 1.8%.
The price action in Wingstop has been positive so far this year, bucking the market trend.
This shows us money might be flowing into the stock, as investors are expecting solid growth in the coming year.
First Data (FDC) is an e-commerce and payment solutions company and a Zacks Rank #1 (Strong Buy). The stock is below its offering price of $16, but analysts see promise here.
Some Facts About the IPO Market
Over the last 30 days current quarter estimates are on the rise by 11% and 2016 estimates have risen almost 4%. Valuation is the attraction, as the company holds a Zacks Style Score of “B” for Value.
Summit Materials (SUM - Free Report) is a construction material company and a Zacks Rank #1 (Strong Buy). The company has Zacks Style Scores in Momentum an “A” and Growth of a “B”. The company supplies aggregates, cement, ready-mix concrete and asphalt in the U.S.
and Canada. The Denver based company has a Zacks Industry Rank of 41 out of 265 (top24%).
Summit has a $2 Billion market cap with a Forward P/E of 12.60. Additionally the company sports Zacks Style Scores in Momentum of a “B” and Growth of a “B”.
What is an Initial Public Offering (IPO)?
From this, we can expect steady growth coming from a low multiple company.
Opportunity exists in these recent IPOs. Shorts have placed their bets and market forces have helped drag down stock prices. Recent fear about the macro situation has created value in companies that have good long-term prospects. An investor seeking growth in companies in the early stage of development, should look into adding one of these recent IPOs.
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