If you're going to go public, timing is everything. You don't want to make your market debut when investors are making a mad stampede for the exits. You also want to make sure that you're hitting the market before your niche peaks.

Put it all together and it's easy to see why underwriters were draped in yellow "do not cross" crime scene investigation tape. It worked, somewhat. Just five brave -- or stupid -- companies decided to test the market's icy waters during the third quarter.

Let's make a game out of it. Remember my tip about not staging an IPO after your sector has overstayed its welcome? Well, let's see if you can pick out the one IPO that actually didn't fall on its face this past quarter.

  • Energy Recovery (NASDAQ:ERII) -- California-based company making seawater desalination products.
  • GT Global International (NASDAQ:SOLR) -- As if the ticker doesn't give away the solar bent, GT provides equipment to the photovoltaic industry.
  • China Distance Education (NYSE:DL) -- Chinese provider of Web-based professional education.
  • China Mass Media Advertising (NYSE:CMM) -- Going public just as the global spotlight turned to Beijing for this summer's Olympics, this company delivers advertising services to China Central Television (China's largest television network).
  • Rackspace (NYSE:RAX) -- Fast-growing webhosting company has 33,000 clients.

So look closely at the police lineup. One company specializes in providing clean drinking water. One is a solar energy play. Two hail from China. One is a tech infrastructure company.

The winner? Water works, of course.

The scorecard
Just one of the third-quarter IPOs is trading above its offering price, but don't scribble that proclamation in permanent marker. Energy Recovery took a 10% hit yesterday, pricing the stock at $8.63. It's just a sour sneeze away from testing its $8.50 IPO price from three months ago, and it actually dipped below that mark during the day before inching its way out.

It's not pretty, but Energy Recovery wins the beauty pageant by default.

 

IPO

10/1/08

Gain/Loss

Energy Recovery

$8.50

$8.63

2%

GT Solar

$16.50

$10.07

(39%)

China Distance Education

$7.00

$4.25

(39%)

China Mass Media

$6.80

$5.10

(25%)

Rackspace

$12.50

$8.33

(33%)

Source: Hoover's IPO Central.

If you want a sobering angle on the carnage, keep in mind that these are the quality companies that were vetted by the market to make it this far. Weaker companies filed to go public, found little investor interest, and decided to pack their bags and come back to file another day.

Oh, and we're not just talking about the first wave of public investors being underwater. Many of these companies had to settle for pricing at the low end of their original range. Rackspace was once hoping to price its stock as high as $16 a pop. China Distance Education had to be talked down from its $11 perch.

These aren't bad companies. In fact, their first quarterly reports as public companies show that they are certainly growing. Rackspace posted a 56% revenue spurt in last month's quarterly report. China Distance Education grew its top line at a reasonable 35% clip.

Unfortunately, Mr. Market is throwing the baby out with the bathwater, and in a day or two (or possibly today) even Energy Recovery may not have the respectful tiara with a shot at purifying said bathwater.

Things will get worse
Rackspace went public on Aug. 8, 2008. It was the last of the five companies to go public. No one wants to skinny dip in these frigid waters. How could they? If even the quality companies are getting slammed, which potential debutante stands a chance?

Investors aren't stupid. There was a time when underwriters couldn't get enough shares of solar, Internet, and Chinese stocks to hand off to their best clients. Now, nobody wants a piece of a new offering.

Even some of the companies that chanced the market to go public during the previous quarter -- like potash specialist Intrepid Potash (NYSE:IPI) and residential solar panel installer Real Goods Solar (NASDAQ:RSOL) -- have fallen below their IPO prices (and quite sharply, in Real Goods Solar's case).

It's a shame, of course. At a time when creditors are as stingy as ever, the equity markets would seem like a natural resource for promising, fast-growing companies to raise capital to bankroll their spurts.

That time will come, but it certainly isn't going to come anytime soon.

Some interesting ways to profit from the IPO void: