NEW YORK – Of the 210 IPOs between June 1 and Dec. 31 of 2000, only 53 stocks now trade above their offering price.
Though not a decisive indicator of a newly public company’s health, it is a good sign when, after several months, a stock trades above its offering price–particularly in the current market. “That shows the company has some investor backing,” says Richard Peterson, market strategist at Thomson Financial.
Peterson adds that investors should scrutinize the longer-term viability of such companies by taking a critical look at the business model, earnings prospects and competitive pressures.
One example: eFunds (nasdaq: EFDS – news – people ), formerly a subsidiary of check-printing concern Deluxe (nyse: DLX – news – people ), which provides electronic transaction processing services and risk management. In June 2000, eFunds went public with 5.5 million shares at $13.00 each. EFunds sank to $6 by October but staged a dramatic recovery. Its recent price: $22.50.
What’s behind the rebound? “I think you had a lot of short covering,” says Gary Prestopino, vice president and senior analyst at Barrington Research Associates, a Chicago-based brokerage firm. Short covering is when investors close out short-sale positions by purchasing the shares borrowed from brokers. “The company subsequently put out some good quarterly numbers,” adds Prestopino.
As for other positives, Prestopino notes that 90% of eFunds’ revenue is from multiyear contracts. In its latest fiscal year, reported in December, eFunds earned $4.6 million on sales of $418 million, or 11 cents per share. Security analysts expect profits of 85 cents per share this year and $1.23 in 2002, giving eFunds estimated price-to-earnings (P/E) multiples of 27 and 18 for 2001 and 2002, respectively.
Andrew T. Gillies 