The initial public offering (IPO) market is extremely hot. In 2005, we saw one of the hottest IPO plays in Under Armour Inc. (NYSE/UA) — a Baltimore-based maker of synthetic clothing that has attracted somewhat of a cult following among athletes.
I don’t want to disappoint you, but I’d bet the majority of you failed to get in on this one at the IPO price of $13, which was still a jump from the initial target range of $7.50 to $9.50 initiated by a group led by Goldman Sachs. It was quite evident the underwriters were very hot on this issue. By setting the IPO price target low to start, they generated added buying interest in the stock.
Did you get some shares from your broker? Probably not. Unless you are a major client, the chances of you getting pre-IPO shares were slim to none. For those of you that were able to get your hands on Under Armour, it was a pretty easy and very profitable trade. As widely expected, the demand for this stock was so high that trading was halted on its first day. By the time the stock began to trade, it opened up at a whopping $31, 138% above its $13 IPO price. That is a pretty good windfall for those investors that had the shares. Otherwise, you were essentially out of luck.
Even if you didn’t buy Under Armour at the starting gate, you could still have bought it in the open market in the $20 range. The stock is now trading at $50, more than double the price at which you could have realistically bought it. In recent weeks, we have seen some other very hot IPOs debut on the Street, some with even more excitement than we saw with Under Armour or Google Inc. (NASDAQ/GOOG), such as Heelys, Inc. (NASDAQ/HLYS) — the company that makes those wheeled shoes that 11 million kids across North America love. The stock is near its lower trading range at $32, so there may be an opportunity here. Consider, however, that since over 90% of the company’s sales come from the wheeled shoes, there is exceptional risk here. On the other hand, CROCS Inc. (NASDAQ/CROX), maker of the popular “Crocs” sandals, has been and continues to be on fire — it has more than doubled from its 52-week low.
Other hot recent IPOs include NYMEX Holdings, Inc. (NYSE/NMX), Allegiant Travel Company (NASDAQ/ALGT), and IPG Photonics Corporation (NASDAQ/IPGP).
The bottom line here is that even if you can’t get in on an IPO, you can still make money buying after the fact. My view is that you should never buy shares at market when the stock first comes out. Looking forward, the IPO market should continue to be hot in 2007.