Annie Storms the Stock Market

The IPO wave continues on the market. The latest company to arrive on the exchange is prepackaged food manufacturer Annie's (NYSE: BNNY  ) . Following the trend of virtually every name-brand IPO over the past year, the company's shares popped high on their first day of trading. At the market's close, the stock was changing hands at $35.92, a fat 89% premium over the $19 issue price. That's an impressive debut, but some fear the shares might be in for a rather steep fall, given the recent trajectory of several prominent new issues.

The law of gravity
Short-term investors and day traders haven't been kind to recent IPOs. On numerous occasions, they've hit the market like Annie's, getting a huge lift from first-day excitement before settling down to more reasonable levels. This is what happened in the case of vaunted new issues like daily discount website Groupon (Nasdaq: GRPN  ) , which is down almost 25% from its $20-per-share IPO price after announcing recently that it would have to restate its earnings. Similarly, the stock of Internet radio broadcaster Pandora (NYSE: P  ) currently treads water at barely over $10; $16 was the issue price.

Annie's is a different sort of girl, though. Her company is robust and profitable, in contrast to Groupon and Pandora. Sales rose 22% annually in the fiscal year ended March 2011, while the company enjoyed a fat net margin of 17%. Going by the results of the last nine months in 2011, the company has grown those sales significantly while maintaining profitability, albeit at single-digit net margins.

Selling healthy convenience
Annie's achieves this largely by slotting itself into a promising niche -- prepackaged food that is actually good for you. Annie's eschews the chemical additives that preserve most convenience offerings for months or even years. The company favors natural ingredients that boast a higher level of quality.

This is well in tune with the sentiments of many consumers who have limited time to prepare food yet are increasingly conscious of what they eat.

Annie's has also shown a talent for identifying other niches and selling to them. A recent foray into snack foods has made a nice contribution to revenue and profitability. From 2009 to 2011, the company more than doubled sales of its munchables, from $21.8 million to $44.7 million. This seems to be a company that's quick and nimble on its feet, and is good at recognizing then exploiting opportunity.

Possibly the next LinkedIn
Given Annie's good financials and its very promising market position, it's quite likely that its stock price will escape the fate of a Groupon or Pandora, i.e., a queasy slide down from its first-day close. Annie's is in much better shape than those two companies and has more potential than online business networking provider LinkedIn (NYSE: LNKD  ) , for example, or Internet review site Yelp (NYSE: YELP  ) .

If those two companies can sustain premiums to their IPO prices, then almost certainly Annie's can, too. LinkedIn's profit is thin and Yelp's is nonexistent, yet their stocks continue to fly high at 127% and 87%, respectively, above what they cost at issue. Annie's is much more promising, so don't be surprised if its lovely first-day share price boost is maintained or goes even higher.

Prices of stocks like Annie's crank high on their first day of trading. But is there a more established company that could climb to those lofty heights and significantly multiply in value? We think yes, and we'd like to let you know. For a company we think has huge potential upside, read our free report.

Fool contributor Eric Volkman owns none of the shares mentioned above. Motley Fool newsletter services have recommended buying shares of LinkedIn. The Motley Fool has a disclosure policy.

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Read/Post Comments (2) | Recommend This Article (1)

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  • Report this Comment On April 03, 2012, at 3:34 PM, seattle1115 wrote:

    I'm keeping a close eye on this company. I'm sure that the current price reflects at least a little bit of irrational exuberance, but this company's products are outstanding. Their mac & cheese is like crack for kids - serve it to them once, and they'll want it every day from that point forward - and their entire product line is nutritious and tasty. After a few months, I expect Annie's to settle into its proper market value. At that point, I would consider it a potential long-term hold.

  • Report this Comment On April 09, 2012, at 3:43 AM, TMFVolkman wrote:

    I think you're making a smart move. This is a young firm that really seems to have its act together - it's identified a niche in the market and approached it with much thought and strategy. It really seems to take a lot of care with its products and deliver what it promises. And there's a lot of room for growth too! I think its debut is well-timed - I see a lot of ways they can expand.

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