New IPOs: One Stock to Buy, One to Avoid

LDR Holding and SFX Entertainment go in opposite directions

     

SFX Entertainment (SFXE) and LDR Holding (LDRH) priced their IPOs Oct. 8.

When both stocks opened for trading the next day, they immediately went in separate directions — LDRH shot up 29% while SFXE slid by 8.5%. Not much has changed since then. LDRH cooled down, but remains up 8%, and SFXE has lost almost 18%.

The bottom line, which investor activity confirms, is that LDRH is worth owing and SFXE is not. Here’s why.

LDR Holding

LDRH cares about your spine. Its products make surgical techniques simpler and safer, which can be lucrative business. According to its IPO prospectus: “Our VerteBRIDGE and Mobi platform products incorporate design advancements that provide us with competitive advantages in the estimated $9.6 billion global spine implant market.” With annual revenues of just $91 million in 2012, LDRH’s potential growth is tremendous.

However, keep in mind that the 13-year-old company doesn’t make money, has a pro forma accumulated deficit of $73.6 million and expects to continue losing money for the foreseeable future. This isn’t a slam dunk by any means.

So what makes its stock so attractive?

Revenues from its two main products (VerteBRIDGE and Mobi) have grown at a CAGR of 31%. Its management team believes its first-to-market cervical disc replacement device (Mobi-C) along with its VerteBRIDGE plating technology differentiates LDRH from larger competitors such as Medtronic (MDT) and Johnson & Johnson (JNJ).

The US represents 73% of the $9.6 billion global spine implant market. Given the FDA approval in August of the Mobi-C cervical disc replacement device, it makes sense that it’s increasing the size and geographic breadth of its US sales organization. In 2012, 71% of its $91 million in revenue was generated in the US. Expect that number to increase dramatically with the addition of Mobi-C.

Projecting out over the next five years, the cervical disc replacement market is expected to grow from $147 million in 2012 to $601 million in 2018. The company has implanted more than 17,000 Mobi-C’s outside the U.S. and 30,000 VerteBRIDGE devices in the US and elsewhere since 2007. Given its first-to-market approval in the US for Mobi-C and the existing acceptance of its VerteBRIDGE technology, it’s not hard to imagine LDRH generating at least $200 million from the US cervical disc replacement market by 2018.

 
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Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/new-ipos-one-buy-one-avoid/.

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