Investors got excited when MakeMyTrip
The stock kept going, fueled by hype that it would become India's Ctrip.com
The highs wouldn't last. By the time MakeMyTrip posted quarterly results in November, it became apparent why underwriters had to settle for just $14 a share. Lousy margins, meager profitability, and uninspiring growth grounded overambitious expectations. MakeMyTrip's guidance of $58 million to $61 million in revenue after service costs for fiscal 2011 left everyone wondering why they bid this company's market cap up to roughly $1.5 billion two months earlier.
MakeMyTrip wasn't alone in this harsh revision. Many of China's hottest consumer-based debutantes have also surrendered gobs of their initial gains. Just look at these three recent casualties:
E-Commerce China Dang
Country Style Cooking
In all three cases, the prized brokerage clients who were able to get in on the IPOs are still sitting nicely. But plenty of poor saps found themselves chasing these speedsters, just as their wheels were about to come off.
This can happen fairly quickly. Youku's wild trip -- from a $12.80 IPO to its $50 high to last night's close below $30 -- has taken place in the span of only five trading days. Everyone piled on, hearing that Youku was China's YouTube. I seemed to be out of touch when I pointed out the video-sharing site's negative gross margins last week. I guess my concerns were just fashionably early.
Chinese e-tailer Dangdang.com and quick-service chain Country Style Cooking have healthier fundamentals. At least Dangdang is profitable, though not by much. Country Style Cooking has brighter near-term prospects, though it may have to grow into its current valuation.
Closer to home
You don't need to bring a passport to find combustible IPOs in action. SodaStream
The stock traded as high as $43.47 on the eve of Thanksgiving, but it's since lost a lot of that fizz, closing yesterday at $30.22.
Sometimes you have to go in reverse before going forward
There is good news for investors of those five stocks. If they're patient enough -- and the company lives up to the hype -- a quick rise and fall candidate can live to rise again.
The maker of electric cars went public at $17, but ardent speculators bid the stock up to more than $30 by its second day of trading. A week later, the bears had the wheel -- driving the stock back below its $17 offering price. It didn't remain a busted IPO for long, though, hitting a new high earlier this month.
The moral of the story is that volatility's only natural for heavily hyped story-stock debuts. Investors need to know what they're chasing. And sometimes, as we saw with Tesla, the best course of action is to let the euphoria play itself out and wait for an attractive entry point.
What's your favorite IPO of 2010? Share your thoughts in the comment box below.
Country Style Cooking Restaurant Chain is a Motley Fool Rule Breakers pick. Ctrip.com International is a Motley Fool Hidden Gems recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Longtime Fool contributor Rick Munarriz is a fan of new stocks, and has even recommended several fresh IPOs to Motley Fool Rule Breakers newsletter readers in the past. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy.