One problem with chasing an initial public offering (IPO) is that the euphoria greeting the offering can be followed by a nasty headache.

Yes, there are IPOs like Google (NASDAQ:GOOG). IPOing (a word in some circles) at $85, its first trade was at $100, and four months later it is trading close to its all-time high of $201.60 a share.

But to get a dose of reality, look back to June when educational software provider Blackboard (NASDAQ:BBBB) came screeching out of the starting gate. Rising 43% on its first day of trading, it also reached its all-time high of $23.40. While revenue growth has been strong, this stock chart shows what happens when IPO froth evaporates. At December 9th's low, the stock was just $0.14 above its IPO price of $14.00 a share.

In June, Blackboard ranked as the second most successful technology IPO in 2004. Salesforce.com (NYSE:CRM) took first place with a 56.4% first-day gain. Offered at $11.00 a share, it reached an all-time low of $9.00 two months later. While sales have been strong, earnings have been a disappointment.

Investors in recent IPOs should consider the business realities confronting their purchases.

The hottest recent offering is certainly the Las Vegas Sands (NYSE:LVS). Its $17.4 billion market capitalization, $3.0 billion more than the combined capitalization of MGM Mirage (NYSE:MGG) and Mandalay Resort Group (NYSE:MBG), might seem so high a valuation as to cause some to question whether there is much upside left. But I feel it's less likely than some other recent IPOs to fall, because the company is basically a mature bricks-and-mortar business and has a number of high-margin, high-end casino projects sprouting out of the ground.

Not so fortunate may be PortalPlayer (NASDAQ:PLAY). It skyrocketed 51% from its IPO price on the strength of the technology it supplies for Apple's (NASDAQ:AAPL) iPod. The reason for concern is that 90% of sales come from that one product. If Apple ever decides to change vendors, what's the fallback plan?

There have been many IPOs making strong near-term gains. Investors would be wise to evaluate the earnings growth potential and to consider competitors' stock prices. In many cases, investors will find the original IPO offering price was well-conceived and that the early froth was just the formula for a nasty financial headache.

Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.

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