The Times 100 : The Best Performing Companies in California : VIEW FROM THE STREET : The Risks Are High, but Many IPOs Outperform the Market
Bob Schock is one of the fortunate ones. He bought stock in New Image Technologies when the little Canoga Park software company went public at $6.50 a share last August. New Image shares now go for nearly twice that.
He also bought a stake in Rexhall Industries, a Saugus manufacturer of mobile homes. Rexhall’s shares have soared 52% since going public last summer.
Of course, not all those who invested in newly issued stocks did so well.
Those who bought stock in Biomagnetic Technologies when the company went public at $9 a share last July have seen the value of their shares plummet 72% to $2.50. And since Keegan Management went public in December, the value of its stock has dropped 32% to $4.75 from $7.
Some savvy investors shy away from the new issues market because these fledgling companies often suffer from poor earnings and volatile stock prices. And because most don’t have a lot of financial wherewithal or borrowing power, their shares often can be severely hurt by relatively minor events.
But as Schock’s case illustrates, new issues can also be highly rewarding. Of the 34 California companies that went public last year, for example, half outperformed the Standard & Poor’s 500 index for all 1989. And a good deal of those companies scored double-digit gains in just a few months.
Software maker Borland International went public last December. By mid-April, its shares had appreciated 55%, rising to $15.50 from $10. Laserscope, which designs and sells surgical laser systems, went public last November. In the following five months, its shares jumped nearly 81%.
By comparison, the S&P; 500--a broad measure of stock market performance--gained 32% for all of 1989, also considered an exceptional return.
So what’s the key to profiting in the new issues market? Schock, who makes his living in Bend, Ore., by investing in small firms, says knowing about a company’s products is vital.
“I invest in things I think I know something about,” he said. “If I don’t have any personal experience with the product, I try to get some.”
When Schock bought his Rexhall stake, he already had one of its motor homes. His favorable impression helped spur him to buy the company’s stock. Even now, he raves about the RV, which he said is exceptionally well-designed, affordable and holds the road better than other RVs he’s owned.
On the other hand, Schock has done poorly with high-technology companies because he says he doesn’t understand technology. Last week, he took a bath on Digital Microwave shares, which he purchased three years ago as a new issue. The company, which makes short-range digital transmitting equipment for cellular phones, reported disappointing earnings, and its stock fell from $27 to $14 on April 23.
“It was the biggest loss of my life,” Schock groans.
But knowing a company’s products isn’t everything. Other experts say that management is most important.
“Most of these growth companies start out with a good concept,” said Harold J. Meyers, chairman and chief executive of Los Angeles investment banking firm H. J. Meyers & Co. “But generally every growth firm runs into two or three crises over time. It is how management handles those crises that determines how well the company survives.”
Managers should have experience in their industries, but investors also need to determine whether they are practical enough to watch over mundane matters, such as annual budgets, Meyers said.
And then there’s the tricky element of timing. Timing is everything.
Keegan Management’s stock price, for example, was hard hit when several customers in Florida sued Nutri-System, claiming they developed gallbladder problems from the diet. Keegan, which operates about 70 Nutri-System center franchises, wasn’t sued.
Still, “they got smashed on that news,” Meyers said. “They were the only public vehicle that could be affected.” Before the suit, Keegan’s stock was “going great guns,” climbing to $9 a share from its initial offering price of $7 last December. Investors who sold before the suit was filed could have earned a 28% return. But those who waited saw one-third of their investment go down the drain.
On the other hand, those who invested in Yes Clothing last December did best if they hung on. The company’s stock price fell immediately after the shares were issued, languishing in the $7-$8 range compared to its offering price of $8.50.
But last week, after the successful launch of its men’s apparel line, the company’s stock jumped to $9.50. And analyst Tom Tashjian of Seidler Amdec Securities thinks that’s just the beginning.
INITIAL PUBLIC OFFERINGS: HOW THEY FARED
California firms ranked by change in stock price since initial offering in 1989.
% change 4/10/90 Offer Rank Company in price price price 1 Sunrise Technology 275.0 3.75 1.00 2 Network General 215.6 25.25 8.00 3 Benton Oil & Gas 200.0 15.00 5.00 4 Phoenix Laser Systems 200.0 3.00 1.00 5 Consilium 147.2 22.25 9.00 6 Symantec 88.1 19.75 10.50 7 Caere 85.4 22.25 12.00 8 Helian Health Group** 85.0 9.25 5.00 9 New Image Industries 84.6 12.00 6.50 10 Laserscope 80.6 16.25 9.00 11 A.G. Automotive Warehouses 79.1 2.69 1.50 12 Solectron 72.9 10.38 6.00 13 Mass Microsystems 57.5 7.88 5.00 14 Borland International 55.0 15.50 10.00 15 Rexhall Industries 52.1 9.13 6.00 16 Electronic Arts 37.5 11.00 8.00 17 MIPS Computer Systems 32.9 23.25 17.50 18 VISX 12.5 5.63 5.00 19 HQ Office International 6.6 1.69 1.58 20 William & Clarissa 5.0 5.25 5.00 21 Cirrus Logic 3.8 10.38 10.00 22 Chart House Enterprises 1.9 13.75 13.50 23 MagneTek -1.0 11.88 12.00 24 Vitafort International -3.2 1.94 2.00 25 NDE Environmental -7.3 4.75 5.13 26 Yes Clothing -8.8 7.75 8.50 27 ECI Environmental -12.5 7.88 9.00 28 MGM Grand -12.5 13.13 15.00 29 BEI Electronics -25.0 6.75 9.00 30 Keegan Management -32.1 4.75 7.00 31 International CMOS Tech. -45.0 1.38 2.50 32 Condor Services -53.3 3.50 7.50 33 Cortex Pharmaceuticals -56.5 0.87 2.00 34 Biomagnetic Technology -72.2 2.50 9.00
** See company notes, page 45.
Source: MZ Group. Some data is from IDD Information Services.
