It's been nearly a year since I used the headline you see above in my very first article for The Motley Fool. Back then, I was writing about natural gas pipeliner Kinder Morgan (NYSE:KMI) and the problems it might face if natural gas prices kept rising and forced more energy consumers to switch to cheaper fuels such as coal.
Fortunately for Kinder shareholders, the company has fared just fine, thank you very much, with its shares up about 23% against a 10% gain for the S&P 500. Quite a Christmas present, indeed. Meanwhile, the underlying thesis of the article has also bloomed into fruition, with coal stocks skyrocketing and coal companies -- of all things! -- starting to IPO on Wall Street. Yesterday, for instance, Foundation Coal (NYSE:FCL) made its debut on the big board.
The company floated 23.6 million shares at an offer price of $22 (up 5% from the number announced several days ago and roughly a 22% increase over the range of $17 to $19 that was initially planned). In a few short days, this coal miner dug almost $50 million out of the public markets. But in a reversal of what we've seen in recent IPOs for companies as varied as search engine Google (NASDAQ:GOOG), mobile gamer Jamdat Mobile (NASDAQ:JMDT), and educational software provider Blackboard (NASDAQ:BBBB), Foundation's IPO headed south, dropping about 6% from its offering price by midday yesterday and closing down 1%.
That still leaves the company with a market cap of close to $1 billion, however, and a price-to-sales ratio of roughly 1.0. That's a sizable discount to the valuation of the U.S.'s largest publicly traded coal company, Peabody Energy (NYSE:BTU), which sports a 1.5 P/S ratio, and an even larger discount to the 1.9 P/S ratio accorded peer Alliance Resource Partners (NASDAQ:ARLP), which has roughly the same market cap as Foundation.
In other words, as fast as Foundation's price has risen over the past few days, the company still looks to have some room to run. While the stock debuted in the middle of a market sell-off and traded down along with everyone else, investors might want to consider this gift of a discount-priced coal stock a good thing this Christmas.
For more on the fascinating world of coal investing, read:
- Coal Trash = Cold Cash
- Are Coal Stocks Really Diamonds?
- Heads-Up for Headwaters
- Buy Coal for Christmas?
Fool contributor Rich Smith has no position in any company mentioned in this article.
