Scouting the Latest IPOs

Just like opening day at the ballpark, investing in new IPOs holds the potential for shining promise and crushing disappointment. If you simply can't bear to just cheer on your favorites from the sidelines, at least be careful about investing in this league. Many new issues swing for the fences during their first trading days, only to slump once marketing hype has given way to mundane earnings reports.

Don't commit an error by stocking your entire portfolio with rookies. Allocate just a small percentage of your risk capital to IPOs. Scout your potential phenoms carefully, and be choosy about composing your own rotisserie league. Investing with an eye for a season extending long beyond opening day will reward you with quality players capable of staying in the game. With that in mind, we offer our Foolish scouting report of the latest IPOs.

Last week's games

Winner: Netezza

  • Ticker: NYSE: NZ
  • Industry: Data warehouse provider
  • Deal terms: 9 million shares, $12 per share
  • Lead managers: Credit Suisse and Morgan Stanley
  • Filed: March 22
  • Opening day: July 19, opened at $15, closed at $17.39, 44.9% gain
  • Bleacher banter: Priced above its proposed range of $9-$11 per share.

SemGroup Energy Partners

  • Ticker: Nasdaq: SGLP
  • Industry: Energy partnership
  • Deal terms: 12.5 million shares, $22 per share
  • Lead managers: Citigroup and Merrill Lynch
  • Filed: March 9
  • Opening day: July 18, opened at $29.75, closed at $29.32, 33.3% gain
  • Bleacher banter: Priced above its proposed range of $19-$21 per share.

Limco-Piedmont

  • Ticker: Nasdaq: LIMC
  • Industry: Aerospace maintenance provider
  • Deal terms: 4.4 million shares, $11 per share
  • Lead manager: Oppenheimer
  • Filed: April 17
  • Opening day: July 19, opened at $12.50, closed at $13.30, 20.9% gain
  • Bleacher banter: Priced above the midpoint of its proposed range; increased size of offering by 400,000 shares.

hhgregg

  • Ticker: NYSE: HGG
  • Industry: Appliance and electronics retailer
  • Deal terms: 9.4 million shares, $13 per share
  • Lead managers: Credit Suisse and Lehman
  • Filed: April 18
  • Opening day: July 20, opened at $13.72, closed at $14.55, 11.9% gain
  • Bleacher banter: Priced below its proposed range of $15-$17 per share.

Encore Bancshares

  • Ticker: NYSE: EBTX
  • Industry: Bank holding company
  • Deal terms: 2 million shares, $21 per share
  • Lead manager: Keefe Bruyette Woods
  • Filed: May 8
  • Opening day: July 18, opened at $22.26, closed at $22.43, 6.8% gain
  • Bleacher banter: Priced at midpoint of its proposed range.

Dice Holdings

  • Ticker: NYSE: DHX
  • Industry: Career website operator
  • Deal terms: 16.7 million shares, $13 per share
  • Lead managers: Credit Suisse and Morgan Stanley
  • Filed: April 5
  • Opening day: July 18, opened at $14.50, closed at $13.40, 3.1% gain
  • Bleacher banter: Priced at high end of its proposed range.

Airvana

  • Ticker: Nasdaq: AIRV
  • Industry: Network infrastructure provider
  • Deal terms: 8.3 million shares, $7 per share
  • Lead manager: Morgan Stanley
  • Filed: April 19
  • Opening day: July 20, opened flat, closed at $7.17, 2.4% gain
  • Bleacher banter: Priced below its proposed range of $8-$10 per share.

Orbitz Worldwide

  • Ticker: Nasdaq: OWW
  • Industry: Online travel company
  • Deal terms: 34 million shares, $15 per share
  • Lead managers: Morgan Stanley, Goldman Sachs, and Lehman
  • Filed: May 10
  • Opening day: July 20, opened at $14.90, closed at $14.50, 3.3% loss
  • Bleacher banter: Priced below its proposed range of $16-$18 per share.

Silver State Bancorp

  • Ticker: Nasdaq: SSBX
  • Industry: Bank holding company
  • Deal terms: 1.5 million shares, $20 per share
  • Lead managers: Sandler O'Neill and Howe Barnes
  • Filed: April 13
  • Opening day: July 18, opened flat, closed at $19.30, 3.5% loss
  • Bleacher banter: Priced at midpoint of its proposed range; stock had already been trading on the OTC boards.

Loser: MF Global

  • Ticker: NYSE: MF
  • Industry: Futures and options broker
  • Deal terms: 97.4 million shares, $30 per share
  • Lead managers: Citigroup, JPMorgan, and Lehman
  • Filed: May 31
  • Opening day: July 19, opened at $29.37, closed at $27.55, 8.2% loss
  • Bleacher banter: Priced below its proposed range of $36-$39 per share. Valuation concerns prompted another disappointing showing for alternative investments, following the poor post-IPO performance of Blackstone (NYSE: BX  ) .

On deck

BladeLogic

  • Proposed ticker: Nasdaq: BLOG
  • Industry: Data center software provider
  • Proposed deal terms: 5 million shares, $12-$14 per share
  • Lead managers: Morgan Stanley and Merrill Lynch
  • Filed: April 5

ImaRx Therapeutics

  • Proposed ticker: Nasdaq: IMRX
  • Industry: Drug developer
  • Proposed deal terms: 3 million shares, $5 per share
  • Lead manager: Maxim
  • Filed: May 4

lululemon athletica

  • Proposed ticker: Nasdaq: LULU
  • Industry: Athletic apparel retailer
  • Proposed deal terms: 16.4 million shares, $10-$12 per share
  • Lead managers: Goldman Sachs and Merrill Lynch
  • Filed: May 1

Monotype Imaging

  • Proposed ticker: Nasdaq: TYPE
  • Industry: Imaging solutions provider
  • Proposed deal terms: 11 million shares, $13-$15 per share
  • Lead manager: Banc of America
  • Filed: Jan. 26

PerfectWorld

  • Proposed ticker: Nasdaq: PWRD
  • Industry: Chinese online video game developer
  • Proposed deal terms: 11.8 million shares, $12-$14 per share
  • Lead managers: Morgan Stanley and Credit Suisse
  • Filed: July 2

Rex Energy

  • Proposed ticker: Nasdaq: REXX
  • Industry: Oil and gas company
  • Proposed deal terms: 14.7 million shares, $11-$13 per share
  • Lead manager: KeyBanc Capital
  • Filed: April 27

Validus Holdings

  • Proposed ticker: NYSE: VR
  • Industry: Bermuda-based reinsurer
  • Proposed deal terms: 15.7 million shares, $24-$26 per share
  • Lead managers: Goldman Sachs and Merrill Lynch
  • Filed: Jan. 16

Voltaire

  • Proposed ticker: Nasdaq: VOLT
  • Industry: Israeli-based server and storage switching services provider
  • Proposed deal terms: 7.7 million shares, $12-$14 per share
  • Lead managers: JPMorgan and Merrill Lynch
  • Filed: July 10

Game of the week
The subject of this week's spotlight, lululemon athletica, is a North American designer and retailer of athletic apparel. Its products encompass yoga, dance, running, and general fitness garments and accessories. The company commenced operations in Canada in fiscal 1988. Today, lululemon is Delaware-based; as of July 1, it sold its branded apparel principally through 59 stores located in Canada and the U.S.

Financial performance has been strong. For the fiscal year ended Jan. 31, net revenue increased to $148.9 million from $84.1 million a year ago, and net income rose to $7.7 million, taking account of a $7.2 million charge related to settlement of a lawsuit, from $1.4 million. Comparable-store sales rose 25% over that same period. The company sports a healthy balance sheet, without any long-term debt.

Lululemon calls its business strategy "community-based." The company believes it reinforces its brand and encourages customer loyalty by incorporating real-time customer feedback, siting its stores in integral locations within communities, creating educational store environments, and marketing on a grassroots level. The company seeks to grow its store base in North America, increase brand awareness, introduce new product technologies, expand product offerings, and open additional stores in Japan and Australia. Proceeds of the offering will be used to fund new store openings and working capital, and for other general corporate purposes. Those may include general and administrative expenses and potential acquisitions of franchises.

Demand for the offering has appeared as convoluted as its customers' yoga routines. Originally planned for 18.2 million shares, the deal size was then cut to 16.4 million late on July 13, before it was increased back to 18.2 million shares last week. Shares are expected to begin trading Friday. As always, make sure you do your own warm-ups. Read through a company's offering documents, including the risk factors, before getting in on the game!

Warming up in the bullpen

  • Cross Match Technologies, a biometrics technology provider, announced deal terms of 11.8 million shares at $14-$16 per share. The lead manager is Credit Suisse.
  • Genpact, a business processor, announced deal terms of 35.3 million shares at $16-$18 per share. The lead managers are Morgan Stanley, Citigroup, and JP Morgan.
  • Masimo, a medical device maker, announced deal terms of 11.9 million shares at $16-$18 per share. The lead managers are Piper Jaffray, Deutsche Bank, and Citigroup.
  • NanoDynamics, a clean energy solutions provider, announced deal terms of 6.6 million shares at $12-$14 per share. The lead manager is Jefferies.
  • Sucampo Pharmaceuticals, a drug developer, announced deal terms of 3.8 million shares at $14-$16 per share. The lead manager is Cowen.

Sent down to the minors
No offerings were postponed last week.

Minor-league developments
Get ready, get set ... not yet! The latest major filings announced during the last week include:

Internet Brands

  • Proposed ticker: NYSE: IBX
  • Industry: Website services provider
  • Proposed deal terms: Not yet determined
  • Lead manager: Credit Suisse
  • Filed: July 20

Paragon Shipping

  • Proposed ticker: Nasdaq: PRGN
  • Industry: Drybulk shipping services provider
  • Proposed deal terms: Not yet determined
  • Lead manager: Cantor Fitzgerald
  • Filed: July 19

Quest Energy Partners

  • Proposed ticker: Nasdaq: QELP
  • Industry: Oil and natural gas partnership
  • Proposed deal terms: 8.8 million common units, price not yet determined
  • Lead manager: A.G. Edwards, Wachovia, and RBC Capital
  • Filed: July 19

Renewable Energy Group

  • Proposed ticker: NYSE: RWE
  • Industry: Biodiesel provider
  • Proposed deal terms: Not yet determined
  • Lead manager: Credit Suisse
  • Filed: July 16

Rodman & Renshaw

  • Proposed ticker: Nasdaq: RODM
  • Industry: Investment bank
  • Proposed deal terms: Not yet determined
  • Lead managers: Sandler O'Neill and Renshaw
  • Filed: July 19

Venture Financial Group

  • Proposed ticker: Nasdaq: VNBK
  • Industry: Bank holding company
  • Proposed deal terms: Not yet determined
  • Lead managers: Keefe, Bruyette, & Woods and D.A. Davidson
  • Filed: July 16

Virtusa

  • Proposed ticker: Nasdaq: VRTU
  • Industry: Offshore IT services provider
  • Proposed deal terms: 4.4 million shares, $14-$16 per share
  • Lead manager: JP Morgan
  • Filed: July 19

Disabled list
No planned offerings were withdrawn last week.

Champions
Meet our current champs. Among companies that went public during the last twelve months, these firms' percentage returns from their offer prices to their most recent closing prices rank them as the top five players:

Company

Return

Description

IPO Date

First Solar (Nasdaq: FSLR  )

+450.7%

Solar module provider

11/16/06

Riverbed Technology (Nasdaq: RVBD  )

+399.8%

Tech

9/20/06

New Oriental Education (NYSE: EDU  )

+266.7%

Chinese educational services

9/6/06

Trina Solar (NYSE: TSL  )

+223.7%

Chinese solar module provider

12/18/06

JA Solar (Nasdaq: JASO  )

+149.3%

Chinese solar cell provider

2/6/07

Benchwarmers
Now meet our current benchwarmers -- that's nicer to say than "losers," isn't it? Among companies that went public during the last twelve months, these firms' percentage returns from their offer prices to their most recent closing prices rank them as the bottom five players:

Company

Return

Description

IPO Date

Netlist (Nasdaq: NLST  )

(63%)

Memory device maker

11/29/06

MEDecision (Nasdaq: MEDE  )

(56.2%)

Medical software provider

12/12/06

ACA Capital (NYSE: ACA  )

(50.8%)

Asset manager

11/9/06

Achillion Pharmaceuticals (Nasdaq: ACHN  )

(45.6%)

Drug developer

10/25/06

3SBio (Nasdaq: SSRX  )

(41.8%)

Chinese biotech

2/6/07

Groupies and fan clubs
If you don't want to declare your loyalties for specific players, but still want to enjoy the action, consider subscribing to an IPO-focused mutual fund or exchange-traded fund. Of course, do your scouting homework here, too, and make sure you read their prospectuses before buying season tickets.

Last week proved disappointing for the issues that debuted, the general market, and seasoned IPO players alike. The Nasdaq came in with the fewest bruises, slipping 0.7%, followed by the 2.3% decline in the Russell 2000. The First Trust IPOX 100 (AMEX: FPX  ) , an ETF, declined 2.4%, and the IPO Plus Aftermarket (FUND: IPOSX  ) , a mutual fund, fell 2.4%. Keep reading the Fool to see how your favorite players perform as they mature!

We're publicly offering further Foolishness:

New Oriental Education is a Motley Fool Global Gains newsletter recommendation. Discover more of the world's best stocks with a free 30-day trial subscription.

Fool contributor S.J. Caplan roots for the Cleveland Indians when her husband is watching, and for the Boston Red Sox when he leaves the room. She owns shares of Goldman Sachs, but otherwise holds no financial position in any firms or funds mentioned here. The Fool has a disclosure policy.


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