THE TIMES 100 : The Best Performing Companies in California : View From the Street : Initial Stock Offerings Proved a Real Gamble
Trying to find a pattern in last year’s initial stock offering winners and losers is pretty much an exercise in futility--at least, among California offerings.
* There were big high-tech successes on the California new stock roster, such as systems-software company Xilinx, whose stock was offered at $10 a share last June and now is around $23.
* There also were some high-tech duds, including VeriFone, the leading maker of electronic systems that retailers use for credit card authorizations. Its stock soared initially from the $16 offering price in March, 1990, but it now sells around $15.
* In the consumer products arena, lamp maker Dynasty Classics flickered: It sold stock at $11.25 a share in May, 1990, but the price has since tumbled to $5.
* Meanwhile, athletic shoe star K Swiss has seen its shares leap to about $27 from a June offering at $17.50 apiece.
The Times’ list shows the major initial stock offerings by California companies in 1990, ranked by the stocks’ percentage changes as of mid-April. What it also indicates is that investing in new stocks last year was a form of legalized gambling: There were some real jackpots--and some near-total losses.
This year, that will be just as true--if not more so, given that Wall Street’s latest bull market is unleashing an even greater torrent of new companies eager to sell stock for the first time.
Try as they might, investors just can’t know when they buy a new stock whether they’ve picked a long-term winner or loser, because the companies behind the stocks--mostly young and heavily dependent on a single product or concept--are by definition high-risk situations.
Which is also to say that many of the stocks on this list could be in far different shape a year or two from now. The inherent problem for young companies is that Wall Street generally figures that “long-term investing” in a new stock means holding on for all of three weeks after the offering. People like to “flip” these stocks, and for good reason.
“A typical IPO (initial public offering) outperforms the market for the first three months after going public,” says Robert Natale, new-issues expert at Standard & Poor’s Corp. in New York. After that three-month honeymoon, the stocks often are dragged lower for nine months to a year, he says.
The selling pressure in that post-honeymoon period often stems from corporate insiders cashing out, experts say. But that, too, eventually passes. Natale’s advice is to take a closer look at some of the new-stock dogs one year after their offerings. You may find some real star-quality long-term buys at that point, he says.
So far, there has been more star quality among last year’s biggest California stock offerings than among the smallest:
* The biggest 1990 offering of all, by grocery chain Safeway, saw its reappearance as a public company after going private in a leveraged buyout in 1986. The shares were sold for $11.25 each in April, 1990, raising $90 million for Safeway. They now sell for about $20, as slimmed-down Safeway’s earnings have continued to beat expectations.
* Of the 20 largest offerings of 1990 (by dollars raised), 14 were above their offering prices as of mid-April of this year.
* Of the bottom 21 offerings in size, only nine traded above their offering prices as of mid-April.
But before you assume that smaller offerings are always too chancey, look at TriCare Inc., a Santa Ana-based company that provides evaluation, treatment and rehabilitation for work-related injuries.
TriCare’s earnings have risen strongly every year since 1987, as demand for help with occupational-injury problems has mushroomed. The company went public last year at just $6.50 a share, raising $10.4 million. The stock has since been swept up in the health-care-investing frenzy and now sells around $14--so original investors have more than doubled their money.
Everybody dreams of a TriCare, but without a crystal ball there’s no real way of identifying them--so don’t let a broker tell you otherwise, experts advise. That’s why new-issue investing should always be seen for what it is: fun for your pin money, but never a place you bet the ranch.
INITIAL PUBLIC OFFERINGS: HOW THEY FARED
Ranked by change in stock price since initial offering in 1990.
% change 4/12/91 Offer Rank Company in price price price 1 Foundation Health* 158.0 32.25 12.50 2 Xilinx* 137.5 23.75 10.00 3 TriCare 134.6 15.25 6.50 4 RasterOps 118.8 26.25 12.00 5 Failure Group 117.3 28.25 13.00 6 BE Avionics 110.7 14.75 7.00 7 Pinkerton’s 89.3 26.50 14.00 8 Safeway 84.4 20.75 11.25 9 Acqua Group 84.4 5.53 3.00 10 CII Financial 77.2 20.38 11.50 11 Gensia Pharmaceuticals 72.7 19.00 11.00 12 Trimble Navigation 70.0 17.00 10.00 13 Integrated Systems 69.4 15.25 9.00 14 Tokos Medical 64.6 19.75 12.00 15 Granite Constuction 60.3 27.25 17.00 16 Viking Office Products 59.5 16.75 10.50 17 Cisco Systems* 58.3 28.50 18.00 18 Advanced Logic Research 57.7 20.50 13.00 19 K-Swiss 51.4 26.50 17.50 20 Lidak Pharmaceuticals 34.4 1.34 1.00 21 Immune Response 19.6 8.38 7.00 22 Wet Seal 5.3 15.00 14.25 23 California Jamar 4.2 6.25 6.00 24 GB Foods 0.0 3.25 3.25 25 VeriFone -4.7 15.25 16.00 26 Wahlco Environmental Systems -14.4 11.13 13.00 27 Bird Medical Technologies -21.9 6.25 8.00 28 Modtech -26.3 7.38 10.00 29 Civic Bancorp -26.9 9.88 13.50 30 Telebit -27.5 7.25 10.00 31 Aspect Telecommunications -31.0 10.00 14.50 32 Radius -32.5 6.75 10.00 33 Medgroup -50.0 0.50 1.00 34 IKOS Systems -55.8 2.88 6.50 35 I-flow -56.3 0.88 2.00 36 Dynasty Classics -57.8 4.75 11.25 37 Digital Sound -61.4 3.28 8.50 38 Vidmark -63.0 4.63 12.50 39 Winners Circle -79.2 1.25 6.00 40 STOR Furnishings International -85.9 1.13 8.00 41 CM Communications -87.5 0.63 5.00
* See exceptions, page 55.
Source: MZ Group. Some data is from IDD Information Services.
1990’S BIGGEST IPOS
California-based firms ranked by dollar amount of offering in millions. Company: Millions $ Safeway: 90.0 Verifone: 52.8 Cisco Systems: 50.4 Wet Seal: 42.8 Granite Construction: 42.5 Foundation Health: 41.3 Digital Sound: 40.0 Advanced Logic Research: 39.0 Gensia Pharmaceuticals: 30.8 Radius: 30.0 Trimble Navigation: 30.0 Aspect Telecommunications: 29.0 Dynasty Classics: 28.5 Pinkerton’s: 28.0 Failure Group: 26.0 K Swiss: 25.4 Xilinx: 25.0 Viking Office: 24.3 Tokos Medical: 24.0 Wahlco Environmental: 23.4 CII Financial: 23.0 RasterOps: 22.4 Telebit: 20.9 Ikos Systems: 20.3 Vidmark: 18.8 Stor Furnishings: 18.0 Integrated Systems: 16.2 Bird Medical: 16.0 BE Avionics: 15.4 Immune Response: 15.4 Modtech: 12.0 TriCare: 10.4 Civic Bancorp: 7.0 Lidak Pharmaceuticals: 5.0 GB Foods: 4.3 Winners Circle: 3.9 CM Comm.: 3.5 Medgroup: 3.4 California Jamar: 3.3
