Like a Rolling Rosetta Stone

Rosetta Stone (NYSE: RST  ) seemed outrageous when it filed to go public back in September. The market was tanking and would continue to head lower. The only urgency at the time was that the maker of foreign-language software was generating positive buzz during the previous month's Olympic Games in Beijing. Many athletes, including Michael Phelps, were using the company's program to brush up on Mandarin.

Well, Phelps may not be as marketable as a spokesman since the infamous bong-hit snapshot surfaced, but the percolating stock market made this the perfect week for Rosetta Stone to go public.

The company priced its stock at $18 -- above its initial pricing range -- and it still left IPO proceeds on the table. The stock rose nearly 40% during yesterday's debut, and it's padding those gains nicely this morning.

IPOs have been hard to come by in recent months, but the past five companies to go public have been rewarding initial believers for their investments.

 

IPO

4/16/09

Change

Grand Canyon Education (Nasdaq: LOPE  )

$12.00

$15.68

31%

Mead-Johnson (NYSE: MJN  )

$24.00

$27.00

13%

Changyou.com (Nasdaq: CYOU  )

$16.00

$27.31

71%

Bridgepoint Education (NYSE: BPI  )

$10.50

$12.05

15%

Rosetta Stone

$18.00

$25.12

40%

You have to go all the way back to early August, when webhosting giant Rackspace (NYSE: RAX  ) went public, to find the last market offering that's currently trading below its IPO price.

Still, not just any company can go public. Rosetta Stone has been on a growth tear. Revenue climbed 52% last year to $209.4 million. Earnings exploded from $2.5 million in 2007 to $13.9 million last year. As this company demonstrates, if you want to go public, you have to earn the right to do so.

As with all educational tools, Rosetta Stone is always susceptible to anyone who puts out a better product. That's something to keep in mind even if things are clearly rolling in the right direction for the company. It's also fitting that three of the past five successful IPOs -- Grand Canyon Education, Bridgepoint, and Rosetta Stone -- are all in the education industry.

Now let's see whether these recent IPOs continue to school the market.

Some free educational tools:

Longtime Fool contributor Rick Munarriz is glad to see the IPO spigot flowing again. He owns no shares in any of the companies in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On April 18, 2009, at 7:26 AM, ChuckFullOfNuts wrote:

    In my opinion this article is a bit disingenuous in a couple of ways.

    First off, I don't think it's completely aboveboard to list the IPO price and show how much the stocks have gained/lost from that price. Sure, that was the "official" price, but that price was only available to a select group of people who were in on the IPO pricing. The general investor had no chance to buy Rosetta Stone at $18.00 (it opened at $25.00 that day and the low was $24.05).

    Secondly, showing the stock price change without comparing it to the general market's performance is misleading. From a bit of charting, it appears that the S&P 500 has outperformed MJN since that stock's debut. I wouldn't call that any kind of a reward for the people who purchased it.

    I think a much more informative chart would incorporate these two facts to show whether or not the stocks have "rewarded" investors or not, since it appears to be focusing mostly on the performance of IPOs (as opposed to whether or not these companies are worththile to invest in). I suspect that if the stock performance is accurately measured, it might torpedo the author's thesis, though, so I am not holding my breath.

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