While valuations are almost always stretched in the world of new listings, there have been some very attractive companies come to market over the last twelve months. In fact, there have been all kinds of initial public offerings (IPOs) lately, which is no surprise with a stock market around its record high.
It’s a tough task trying to keep track of them all along with the action in the broader stock market. In this column, I’ve looked at several successful IPOs, but I recently came across an interesting technology growth story that’s in the right business at the right time.
The company is Rally Software Development Corp. (RALY) out of Boulder, Colorado. The company listed on the NASDAQ in April of this year and was an immediate success on the stock market (reasonable valuations are triumphed by high expectations in the world of IPOs). The company’s stock chart is featured below:
Successful IPOs are not only wealth creators for selling and new shareholders; they typically identify growing companies with growing institutional interest. It’s tough these days to find genuine growth in the business world, so successful IPOs, for me, immediately suggest an enterprise that the marketplace wants over the rest of the stock market. It’s always difficult to get shares in the hottest IPOs; therefore, they are worth adding to your watch list afterward. (See “Startup Company with Innovative Trend Has Real Staying Power.”)
Rally Software is in the business of selling cloud applications for Agile software development (collaborative software development methods for teams). In April, the company sold 6.9 million shares of its common stock at $14.00 per share, including 900,000 shares in the full exercise of the underwriters’ option. Then it sold a follow-on offering of more than 5.5 million shares at $24.75 per share (about 5.3 million of these shares were sold by certain insiders and 250,000 by the company) because of the IPO’s big success.
In its second quarter of fiscal 2014 (ended July 31, 2013), the company’s subscription and support revenues grew 36% to $14.2 million. Total revenues grew 45% to $19.8 million, and the company’s gross margin was 79%, up one percent comparatively.
Generally accepted accounting principles (GAAP) net loss for the second quarter was $2.3 million, or $0.09 per basic and diluted share, based on 24 million weighted average shares. This compares to a net loss of $2.3 million, or $1.09 per basic and diluted share, based on 2.1 million weighted average shares. The company finished the quarter with cash and cash equivalents of $104.7 million.
Next quarter, revenues are expected to grow between 24% and 27%. This fiscal year, total revenues are expected to be between $72.5 and $74.0 million, for a gain of 28% to 30% over the last fiscal year. Profitability is likely a couple years away.
The market for new IPOs is a game, but so is everything else in the stock market. Monitoring the successful IPOs is definitely a worthwhile exercise as a speculator.