A moody market so far in 2012

We’ve seen a few deals price so far this year and their highly variable performance points to some investor biases that are in force as we start the year:

  • They biofuel bandwagon appears to be out of gas. Renewable Energy (REGI) was the first deal priced in 2012 and came in below the range and traded down from there. This was somewhat surprising since the company has achieved impressive scale in the business. This follows other deals like Gevo, Amyris, and KiOR which haven’t been stellar. If REGI executes our IV comes in at $32 which is much higher than the current price. Our REGI report can be found here ($).
  • Everybody loves recurring revenue and sticky customers. Guidewire Software (GWRE) has done very well so far. They are a software technology supplier to a major segment of the insurance industry. All the checkboxes are hit with this one – large market, competitive advantage, recurring revenue with positive and increasing operating margins. Thanks to pricing above the range and trading up from there the shares are a bit over our IV estimate of $15. Click here for our GWRE report. ($)
  • Investors are willing to make long-term bets for the right companies. Verastem (VSTM) is a case in point. This innovative biotech is going after treatments that target the stem cells of cancer to do a better job of eradicating the disease. They’ve got a blue chip management team an advisory board with strong science behind them. Still this is a development stage company with a decade of development work in front of it. Investors gave it a warm and patient reception despite the very long term and uncertain payoff. Our brief report on VSTM can be found here. ($)
  • Information security is hot but may not lift all boats. The AVG deal got done but at the bottom of the range and has traded down sharply from there on the first day. AVG has a good business but investors have penalized it for acquisitions and the fact that operating margins have already peaked. It’s a solid if unspectacular deal with an IV well above the offering price. If the weakness persists we would become even more adamant that a company like Constant Contact (CTCT) should buy them and possibly even Carbonite (CARB). Our report on AVG is here. ($)
  • The puzzler of the week is US Silica (aka “sand”) which supplies oil and gas drillers who use “fracking” to improve yields. Producing and shipping sand around is about as basic a business as you can find but investors seem confortable with it and the risks that some states are banning fracking to protect water supplies. Still this company comes close to one of the best businesses that never goes public because it’s too good – rock pits. Buy us a milkshake some day and we’ll tell you why!  We haven’t done a report on SLCA since it seems not to need more analysis. Perhaps in IV would illustrate why investors like it at $17.

Lastly our monthly Candygram has been published today. It’s been a great month in the IPO market from a performance standpoint with the IPO Candy Folio up 11% for January. We’ve taken a more concentrated approach to managing it and it’s off to a good start but the year has a long way to go. Those of you who are Toffee subscribers can get the Candygram via this link. ($)

Although there is a delay of a few days to a week and not all the content makes it you can find our content on sites like Seeking Alpha. Follow us there or monitor Twitter (@IPO_Candy) to know when these pieces are available.

We all know the Facebook deal was filed today. Not many surprises but glad we have ZNGA in the Folio! We’ll be out on FB after we’ve done our analysis and IV.

Best to all!

2 Comments

  1. julian albert on 03/01/2012 at 3:12 am

    could you say or speak about some of the stocks out of the quiet period jive,sn,mcep,bcei,kors,

  2. landshark on 03/05/2012 at 7:27 pm

    Yes indeed we can. Have done some work on Jive which appears overvalued but can put some additional work into that for publication. Will look at these other names to see which we have some material information on.

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