Initial public offerings (IPOs) can be exciting. A stock's debut on the public market is often surrounded by hype and high expectations, and prices can be volatile.
Allowing prices to settle and companies to prove themselves is the real path to outsize stock market gains. Investors should understand the fundamentals of any company before committing their hard-earned money.
Let's take a look at three recently public companies that have set the stage for growth and potentially outsize returns.
New York-based Progyny (NASDAQ:PGNY) manages fertility and "family building" benefits for employees at large firms. The company also offers a pharmacy service, Progyny Rx, to provide members with access to medications needed during fertility treatments.
The stock closed Feb. 14 at $33.01 after going public Oct. 25, 2019, at $13.50 per share, a gain of 145%.
What's driving the growth, especially since other benefit companies have similar offerings? The answer is the unique position that Progyny has carved out for itself.
Progyny approaches fertility benefits by reasoning that what is healthiest for the woman is most cost-effective for the employer. According to the company, the optimal pregnancy outcome is a single birth as it stresses bodies the least and results in fewer ICU stays for babies.
Progeny's presentation at the JP Morgan Healthcare Conference in January showed impressive results. Progeny IVF patients experienced pregnancy 60.7% of the time per IVF transfer, versus the national average of 52.5%. Of IVF patients, Progeny patients delivered multiple babies per pregnancy 3.6% of the time, while the national average is 16.1%.
To achieve those results, Progyny provides a patient care advocate (PCA) who evaluates each patient's situation and coordinates a plan. Then, drawing upon a network of 800 fertility specialists, the PCA guides the treatment forward, zeroing in on the most relevant testing and expediting decision-making to best use the limited time each month when conception can happen.
In other words, the golden rule (treating others the way one would like to be treated) is driving Progyny, and employers and employees are responding. The company expects to have 137 clients by the end of 2020, servicing 2.1 million employees, up from 84 clients as of Sept. 30, 2019.
Progyny's full-year earnings are expected to be reported in early March. Projected 2019 revenue is $230 million. For 2018 the company reported $105 million in revenue. The company is operating in a total addressable market (TAM) of $12 billion, and estimates that so far it has 2% of that market, so there is plenty of potential growth out there.
Progyny is clearly striking a chord. Many people are postponing having children, creating demand for services. Stock investors should keep this company high on their watch lists throughout the coming quarters.
Biology and psychology unite in the field of neuroscience, where Karuna Therapeutics (NASDAQ:KRTX) is making its mark. The company is a Boston-based biotech focused on neuropsychiatric disorders, specifically targeting schizophrenia and Alzheimer's disease.
Karuna Therapeutics went public on June 28, 2019, opening at $18.50 per share, and continued to trade in that neighborhood into autumn. On Nov. 18 the company announced phase 2 clinical trial results showing that its lead drug, KarXT, had a powerful anti-psychotic effect in patients with schizophrenia.
The next day, shares in Karuna leaped to an intraday high of $152, a remarkable increase of 850% from the stock's offering price. As of this writing, the stock price has now settled back to $96 per share. Karuna Therapeutics' dramatic gain illustrates the potential investors see in new psychiatric drugs.
Neuroscience drug discovery, one of the clinically toughest areas, requires a multidisciplinary skillset, including an understanding of disease biology and neuropharmacology and innovative applications of chemistry. Recognizing this, on Feb. 6 Karuna announced a multiyear drug discovery collaboration with Charles River Laboratories, a leading early stage contract research organization, that will support the movement of KarXT through the clinical trial process and will oversee the progress of clinical trials for other applications for the drug.
Karuna Therapeutics is certainly a stock to keep on your radar. The positive phase 2 clinical trial results were a breakthrough in that the drug had a minimum of previously unavoidable side effects, while still having a powerful antipsychotic effect in patients with schizophrenia. Phase 3 clinical trial results will be an important next step in Karuna's story. Investors would be wise to keep an eye on this company.
Docusign (NASDAQ:DOCU), based in San Francisco, went public on April 27, 2018. The company offers products in the e-signature solutions market, and in March 2019 introduced a new product called the Docusign Agreement Cloud, which moved the company from being a digital signature provider to being a solutions provider for agreement management, both before and after signatures.
The new product aims to make the agreement cloud one of the basic software stacks, which are a group of programs working together toward a common goal, like completing a transaction. Docusign envisions the Docusign Agreement Cloud being as vital to a business as digital payments and customer relationship management. The company is closely aligned with Salesforce and built the Agreement Cloud to integrate with Salesforce's customer relationship management systems.
On the Dec. 5, 2019, quarterly conference call, CEO Dan Springer said, "With strong demand for the DocuSign Agreement Cloud we grew revenue by 40% year-over-year to $250 million and billings by 36% year-over-year to $269 million." The company was profitable on an adjusted basis in the quarter, with operating income of nearly $17 million, and it was the eighth consecutive quarter of positive adjusted EPS.
Fiscal 2020 fourth-quarter results are expected in the next few weeks. Docusign is predicting revenue for the quarter of $265 million, at the midpoint of its estimate, a 33% increase year-over-year, and total revenue for the year is projected at $964 million, at the midpoint, a 38% increase.
The economics of paperless transactions are enormous, and as a first mover in the e-signature space, Docusign should continue to do well. Docusign's stock price has increased 21% so far this year and hovers at a 52-week high.
Keeping Docusign on a watch list is a smart move for investors until the company can confirm continued growth and momentum. The company has big ambitions; a few more quarters' results should indicate if they will become reality.