We are very happy to be launching our new “Broken Candy” service to the market. It’s been a long-running request from many of our members and associates. With close to 1000 companies now in our database there is more than enough to work with in terms of finding some fallen angels that are worthy of further attention.

Exploiting the IPO life cycle

There’s a big hype cycle during the IPO process. Intensive marketing and sometimes huge excitement about the “story” and the future. Post-pricing reality can prove a bit less exciting and lead investors to think more about risks than rewards. On top of that months after an IPO lock-up agreements expire – releasing millions of shares into the public float and sometimes creating excess supply and lower prices. For example Shake Shack (NYSE:SHAK) came public at $21 and traded up to an eye-popping $92/share before settling down to the $30’s. Technically the SHAK IPO is not “broken” but we’ll get to that below. As Warren Buffet says “it’s hard to build a sustainable competitive advantage in cheeseburgers” so we will keep watching SHAK.

It’s even worse if the company actually falls short of expectations somewhere along the way. GoPro (NASDAQ: GPRO) is a great example here and this one is really broken. From their $24 IPO the shares peaked at $87 before reaching a low of just $9/share. The stock is at $13.70 today after some recent strength. There are lots of these so we’ve got dozens of names to choose from.

What is Broken Candy?

There are two main pieces: 1) A monthly screen which we will alter to get different groups of broken IPO stocks and 2) more detailed analysis and reports on four to five of the most interesting companies.

Our process begins with multiple screens we run across our data. Then we make adjustments to come up with about two dozen names that deserve more attention. For those few that pass muster they get their own “Broken Candy” feature report which includes a deeper analysis of their situation, prospects, valuation and potential to reward investors.

Here is the screen we used for March:

  • The class of 2015 was a good one so this first screen is limited to deals priced that year.
  • We ranked deals by underwriter and selected only “A” deals which we define as either Goldman Sachs or Morgan Stanley as lead underwriter.
  • Post-IPO gain of 30% or more.
  • Recent price at or below the original IPO price.

We’ll be tweaking the screen each month to look at different slices of the IPO universe but given the target rich conditions of late we wanted to start with the cream of the crop and work from there.

The results of our screen will announced each month and posted on the Broken Candy page. Then we will apply some metrics and judgement to select four to five companies each month for an analysis and write-up and publish one each week during that month.

We’re giving all subscribers a sneak peak at the product but Broken Candy access will require a “Top Ticket” subscription level.

Happy IPO investing to all!


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