Editor's note: An earlier version of this article mistakenly referred to Palo Alto Networks as Palo Alto Software. The Fool regrets the error.
It's been a rough year for IPOs. Facebook (Nasdaq: FB ) , Carlyle, Groupon -- all have had dismal beginnings on the public markets. And with investors fleeing equity markets, it doesn't look pretty for companies making their entrance to the public arena. But in the next few weeks, there are a few companies entering the stage that deserve your attention.
Trust me, I'm just as tired of the IPO nonsense as you are. The Facebook IPO had enough investment-bank and general corporate wrongdoing to last us years. So I know this is a tough argument, but IPOs are not inherently bad. In fact, as you might imagine, they are a necessary force. Think of it like your first child's birth: It's very exciting and you want it to happen. You've prepped all you can -- in the case of the IPO, you've read the S1, you've read the proxy, and you've listened to Jim Cramer throw up words on television for weeks and weeks. The catch is, you know the whole thing is ultimately going to be a big pain in the neck. So why even get involved? Because after that initial rollercoaster of bull, something starts to take shape -- a real publicly traded company. Fundamentals take over, and things begin to behave as they should.
I'm not about to say you should buy these companies the minute they go public, but don't discard them, either.
Our first debutante is Kayak. I probably don't need to introduce this company. It's the travel site you use that takes you to other travel sites. The Google of travel sites, if you will. Kayak was begun by the co-founders of your original favorite travel sites -- Expedia, Orbitz, and Travelocity. Or you might say it's the Miami Heat of travel sites -- peeling away top players from the league and putting them into one, somewhat cohesive arena.
In any event, Kayak has been doing quite well. Year-over-year revenue is up 39%, and the company has been profitable on an annual basis for years. Compare that with most startups, which have yet to turn profits but still command multibillion-dollar valuations. With the extreme success of travel sites such as Expedia and Travelocity, Kayak certainly deserves a close look.
One thing to keep an eye on: Facebook's Master of Debauchery, Morgan Stanley, is running the show for this IPO as well. Make sure they aren't taking you for another ride.
Stratocastin' n' blastin'
If you're a guitar player, or if you just like to wear hipster brand-affiliated clothing, you've heard of Fender. Its flagship Stratocaster model has been the ax of choice for guitar gods such as Jimi Hendrix, David Gilmour of Pink Floyd, and everyone else who wasn't using a Gibson. After decades of guitar-luthier-ing, the company has decided to go public.
Sales are on the rise, though it's worthwhile to note that for years prior, the company suffered greatly from the recession and rising costs. From firsthand knowledge, I can vouch for the products -- Fender makes some of the best guitars available. But it's hard to compete with Asian mass-produced instrument makers who can charge a fraction of the price and satisfy the average amateur player. Net sales are up around 2% from the previous year's quarter, but net income is far down based on high labor costs -- after all, the instruments are made in the United States.
A name fit for a tech company
Palo Alto Networks is our third and final mention. The network security company, oddly enough based in Palo Alto, Calif., has been on a tear. The company has yet to be profitable on an annual basis, but with revenue doubling from last year and net income looking quite positive for the first time since the company's inception in 2007, it looks like this may be yet another explosive tech company.
Palo Alto pitches its customers lower costs, as its network-security solutions are simpler and therefore more affordable than the competition's.
I want to be honest here: I am not the go-to analyst for technology. Network security means to me having a good wingman at a bar to get you out of sticky situations, but I imagine there's more to it. With revenue on the rise and in a disruptive line of business, this may very well be a company to keep an eye on in the coming weeks.
Again, I know IPOs haven't been your friends. They haven't been mine, either. As with any investment, do the homework. IPOs require a great deal of research, and none of it should come from CNBC. Go on the Web, and read the companies' SEC filings. That is the only place I can semi-guarantee you will get quality data.
Yes, the SEC's website is about as much fun as a trip to your divorce attorney, unless you signed a prenup. So if it sounds like too much, our analysts have identified one recent IPO that truly soars beyond the rest. It's not drastically overvalued, and it has a business model that even I, the techno-moron, consider a compelling idea. Read the free report here.