As always, a helpful resource in evaluating a company’s fundamental health is my Portfolio Grader tool. However, in dealing with newly-launched stocks, there is a slight catch. Because much of my grading system centers around earnings data, I only include stocks that have released at least four quarters of operating results. This is so I can nail down the most accurate grade for each stock.
That being said, three of last year’s IPOs have been officially trading for 12 months, so they have been newly added to my PortfolioGrader Tool. Let’s take a look at what they have to offer:
|Ticker||Company||IPO Launch||% Gain/Loss||My Take|
As I mentioned in a recent Stock of the Day feature, Caesars Entertainment (NYSE:CZR) is one of the stronger plays in the casinos and resorts industry; it is the current favorite of institutional investors, as shown by its B-rated Quantitative Grade. While the stock had a rough start, this year alone the stock has taken off 131% on hopes that online gambling will be legalized in the U.S.
However, with Caesars’ financial statements currently in disarray, I consider this stock a gamble. As of this moment, sales growth, earnings momentum and cash flow have hit rock bottom. To add insult to injury, analysts have slashed this quarter’s earnings estimates—they currently expect a loss of $1.57 per share. So come May 1, when Caesars is next due to report earnings, I wouldn’t want to be left holding the bag on this stock. CZR is a hold.
And then there’s Michael Kors (NYSE:KORS)has seen an incredible triple-digit run-up ever since it went public in December 2011. This is a well-known fashion company that designs branded men’s and women’s apparel and accessories, and it’s a big play on the rise of the Chinese luxury goods market. So it was a tough decision to downgrade this stock to a hold a few weeks ago, but I just couldn’t ignore the fact that buying pressure has deteriorated.
Ever since the shorts hit KORS a few months ago, the stock has been on sale. But while I’m playing it safe, I disagree that momentum is slowing for the runway fixture. In the past two months, analysts have increased their first-quarter earnings estimate by 22%. The consensus now calls for 43.9% sales growth and 77.3% earnings growth for this quarter. That being said, while KORS is a hold, I am more optimistic that KORS will be upgraded again before too long.
Finally, there’s Yelp (NASDAQ:YELP) the social networking site which went public last February. With 100 million monthly visitors, Yelp.com is designed to help people search for local businesses, including everything from restaurants and bars to dentists and hairstylists. At the time of the IPO, I recommended that you sit this one out, and boy am I glad I did.
While the Dow and S&P have both risen in the double-digits since then, Yelp has floundered. The company has struggled to turn a profit, as shown by its C-rated Fundamental Grade, so buying pressure has remained weak (C-rated Quantitative Grade). Analysts have also cut their first-quarter earnings estimates over the past month: They now expect the company to post a loss of 6 cents per share.
Now there are rumors that Yahoo (NASDAQ:YHOO) may want to buy out or merge with Yelp, but that’s still not enough to entice me to buy. YELP is a hold as well.
From these data, we can see that while IPOs are great for drumming up investor interest, there is plenty of risk to go around. As for me, I like to stick to companies that have proved their mettle by posting stunning earnings announcements, so I don’t get caught up in the frenzy. So, as tempting as it is to dive into one of these new stocks, I must urge that you hold off.