Investors Wield Their Influence on Share Prices : Stocks: Newly public companies are learning that solid earnings reports are not enough to garner stability in a market saturated with new issues.


Vans Inc. made a triumphant announcement on July 15: In its first year as a public company, the sneaker maker reported record sales and earnings.

That morning, President Richard Leeuwenburg had a conference call with about 30 analysts and investor representatives. While heralding the upbeat news, he also mentioned the sluggishness of the California economy and weakness in the Mexican, European and Japanese markets.

Somehow, Leeuwenburg's so-so forecast became a bleak picture, and the company's stock price fell 16% that day.

"I heard that some went away saying: 'Boy, they're going to have a loss this quarter,' " he said. "I was shocked. That's not what I said. I don't know how they came to that conclusion."

Such is life as a new public company. Stock prices for Vans, like 10 other Orange County firms that had initial public offerings in 1991, can be tied to the whims of just a few institutional investors and portfolio managers. They have become more skeptical about new offerings, and even the slightest hint of negative news is enough to send share prices south.

Vans, one of last year's best-known IPOs, reflects what has happened to many in the class of 1991. It opened at $14 a share when it went public in August, rose to $25 by January, but now is at $11.

For most of these 11 companies, shares prices have returned to or are below where they were when the stock was first offered. One company already plans to restructure and has virtually become a penny stock.

"The average IPO that came out then is probably under water," said Ian Gilson, an analyst for L.H. Friend & Co., an Irvine investment banking firm. "The prices were unrealistic because of expectations, and the valuations were too high."

Analysts attributed part of the boom last year to "pent-up" desire by companies to go public. Many businesses had delayed new issues because of the uncertainty of the Persian Gulf War and were ready and waiting when the market rebounded. Banks also put the squeeze on credit, forcing some companies and their investors to look to Wall Street as a source of cash.

"There's supply and demand," said Steve DeLuca, director of research at Cruttenden & Co., an investment banking company in Irvine. "There's a time when the market gets choked with these new issues."

With a glut of new public companies, coupled with relatively thin trading among institutional investors, stocks become more volatile. And companies have learned that a solid earnings report is not always the ticket to share-price stability.

For example, Vans reported a $6.5-million profit in its first fiscal year contrasted with a $236,000 loss the year before. And although sales for the Orange-based sneaker maker rose 30% to $91.2 million, the share price is still below its offering price.

"There's no question (the stock price) is a disappointment," Leeuwenburg said. "I don't understand it. It's kind of baffling."

Those facing the greatest disappointment have been the biotechnology companies. Shares of Alliance Imaging Inc., an operator of medical imaging devices in Orange, have been trading near $4.75 after opening at $8.50 in November. This drop of more than 40% came despite a nearly tenfold increase in the company's first-quarter earnings: to $553,000 from $59,000.

On Tuesday, all it took were rumors of an investor trying to sell 50,000 shares to send Alliance Imaging's shares to their lowest point--$3.25--although it closed later in the day at $4.25.

"Our experience (as a public company) has not been ideal," said Chief Financial Officer Vincent S. Pino. "It's kind of frustrating because our performance has been good . . . yet our stock continues to go down."

A greater casualty has been IPS Health Care Inc., a provider of medical resource imaging equipment to hospitals, which announced earlier this month that it would restructure after a $5-million loss. Its stock, which jumped from a $7 opening in January, 1991, to $10.37 five months later, has dived to 88 cents.

However, not all of Orange County's health-related companies have had a rough ride on Wall Street.

Shares of Fortis Corp., an Irvine managed health care company, are hovering around $10.50, slightly above the offer price. Company executives said they are glad they got in before election year politics scared investors from taking risks because of uncertainties over health insurance coverage. The company, which changes its name to CorVel Corp. on Monday, recently reported record earnings of $507,000 in its 1993 first quarter.

"Investors don't like uncertainty," said V. Gordon Clemons, company president. "Many times they won't buy or sell, they will just stand on the sidelines. The issue (with health care) is, should the government get involved, and that's unsettling."

Homedco Group Inc., a Fountain Valley home health care company, also has fared well. The company went public in May, 1991, and saw its shares rise steadily from $15 to $26.75 on Friday. The company had one of 1991's biggest offerings of $55.5 million.

" Fortunate is a very key word," Homedco Chairman Jeremy Jones said. "We went public at the right time, there's no question about that."

The shares of another home health care provider, Quantum Health Resources Inc. of Orange, have risen to $25, more than double its offer price in April, 1991. But even Quantum, with its solid per-share growth, has not been immune to the whims of the market.

"It's a fact of life," said Jim Nicol, Quantum's chief financial officer. "There was a decline in the marketplace that took us along with it, but we were not hit as hard as other companies. We have generally delivered the results that have been expected of us."

Even so, most companies stress to shareholders that fluctuations in prices are just short-term occurrences; attention should be placed on long-term growth. They have learned that such an argument is not always persuasive. Public company managers often have to respond to shareholder queries about stock fluctuations, even on a day-to-day basis.

Leeuwenburg of Vans said: "Some of them tend to get really abusive. Some of them can get really emotional. . . . I knew it was part of the job and part of the territory, but you don't really know what it is like until you are there."

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