The 36 percent gain racked up by stock in Crocs Inc., the Niwot maker of funky resin shoes, on its first day of trading reflects an encouraging new breed of initial public offerings now coming to market.
The enthusiasm at the opening bell appears based on actual results rather than fanciful potential.
Crocs offered 9.9 million shares at $21 each last Tuesday evening and raised $95 million for the company after fees and expenses. Crocs closed at $28.55 a share at the end of its first day Wednesday, ended the week at $26.55, and closed Monday at $27.70.
Denver-based Chipotle Mexican Grill has fared even better, closing at $44, up 100 percent, on its first day last month.
Recent offerings are unlike highly speculative IPOs of the 1970s and ’80s and the superheated dot-com issues of the ’90s. “It’s a very healthy market,” said Francis Gaskins, president of IPOdesktop.com.
“The companies coming public are real companies and opening up pretty high. … The institutions have told investment bankers they won’t take companies that don’t have top-line revenues and at least a reasonable operating income margin.”
Last year, 194 IPOs raised $34 billion, down from 216 offerings that garnered $43 billion in 2004. In Colorado, five businesses went public in 2005, raising more than $450 million – the largest number since 2000 (just before the dot-com and post-Sept. 11 busts), when 13 firms had IPOs.
Investors seem impressed by the new-generation IPOs’ performance and underlying value. “I think that’s the big reason we see everybody coming back into the market now,” said David Menlow, president of IPOFinancial.com. “They realize the bar is set relatively high, and ‘concept’ stocks that don’t have the attendant strong fundamentals … are just not going to be able to get out of the gate.”
New offerings face “a lot different market” with more stringent financial tests and a substantial outlay of money for compliance, Menlow noted.
“It’s good for investors, but it leaves out a lot of smaller firms that have every right to come public.” Still, tougher requirements make it less likely that IPOs will be little more than exit strategies for company principals.
As always, any stock involves some risk. For example, will Crocs be a fad, or perennial favorites like Birkenstocks?
Menlow offers some sage advice: “Investors should not be lazy about stocks. They should do their homework.”
