Virtually all initial public offerings (IPOs) come to market overpriced and overhyped. However, one company might be the exception: Penumbra, Inc. (NYSE:PEN).
And with a jittery broader market with reduced speculative fervor, IPO euphoria is severely diminished (perhaps that’s helpful).
So, for a newly listed stock to make it in this market, it has to give the Street what it wants. That’s genuine economic growth for sure, but also the kind of business that isn’t just a one-time wonder—the kind of company that institutional investors will buy into over time, with a business offering more consistency in terms of its future prospects.
However, Penumbra stock, a billion dollar business that just listed on the New York Stock Exchange, is one recent IPO with a lot of good things going for it. What big investors want in this market is growth and security. Where do you get it? Medical devices. The healthcare sector is the place to be in a slow growth world.
With A Strong Start, Penumbra Stock Has Excellent Potential
After fees, Penumbra raised $125 million selling 4.6 million common shares to the market at $30.00 apiece. It was a successful listing, so far.
Average trading volume for the stock is pretty light. This exaggerates the price movements in the shares. But it’s still in the early days for this IPO. It’s highly likely the company will be back to the market, selling more shares in due course.
As an IPO, it will take time for the marketplace to get to know this name. But Penumbra has a lot going on. The company sells a number of products related to the treatment of strokes, blood vessels, and vascular health.
Most of the company’s products are sold to hospitals through its own sales force. Based in Alameda, California, Penumbra has about 1,000 employees in the U.S., Canada, Europe, and Australia. It was founded in 2004 with its first neurovascular product launched in 2007.
In 2014, the company’s total sales grew 41% over the previous year to $126 million.
Proceeds from its IPO will be directed to new research and product development, clinical trials and sales force expansion.
In 2013, Penumbra’s total sales were approximately $89.0 million. They were $73.0 million in 2012.
So this is a growth story and medical device/healthcare businesses tend to produce “above economy” comparable growth rates.
The company is only modestly profitable; close to break-even as it continually reinvests in its business. With no long-term debt, operational risks for the business mostly surround approval risk for new product introductions and competition.
Penumbra’s main competitors in the vascular medical device market are big names. Some are Boston Scientific Corporation (NYSE:BSX), Medtronic plc (NYSE:MDT), Johnson & Johnson (NYSE:JNJ), and Stryker Corporation (NYSE:SYK) according to its prospectus.
One thing that often happens with IPOs even when broader stock market action is buoyant: they come to market, do well initially, then retreat substantially in price because they were expensively priced and new potential investors are waiting for the business to “show them” the money—a.k.a. sales and earnings growth.
Here’s the Bottom Line on Penumbra Stock
Penumbra’s stock got off to a great start in weak market conditions, trading 10 points above its selling price.
PEN stock is one to keep a sharp eye on. When the post-IPO enthusiasm settles, a price consolidation in this stock could yield a solid risk-capital opportunity.