The IPO market can be an ample source of big-gain potential for investment portfolios. After all, many of these companies are in their early stages, and focused on cutting-edge technologies.
Just imagine if you bought some of the best IPOs in tech history, such as Microsoft Corporation (NASDAQ:MSFT), Netflix, Inc. (NASDAQ:NFLX) or Amazon.com, Inc. (NASDAQ:AMZN) when they came public. Those companies have netted investors percentage returns in the thousands, even tens of thousands.
And investors have access to the same kind of big-return opportunity all the time.
Today, we’ll look at some of the best IPOs to buy from the batch of companies that have come public within the past year. I think these companies have reasonable valuations, large market opportunities, unique technologies and/or competitive advantages that should lead to sustainable growth.
Let’s look at some of the best IPOs out there today:
Best IPOs to Buy: Rewalk Robotics Ltd (RWLK)
IPO Date: 9/11/14
Rewalk Robotics Ltd (NASDAQ:RWLK) is the brainchild of Dr. Amit Goffer, who became a quadriplegic in 1997, then founded the company in 2001.
Goffer launched Rewalk with the vision to create light, battery-powered wearable exoskeletons to make it possible for wheelchair-bound people to walk.
In June, RWLK achieved a major milestone — the company won approval from the FDA to sell its exoskeletons. So while it likely will take time for Rewalk’s products to gain traction, the company does have a head start, as it’s the only one with regulatory clearance.
Interestingly, RWLK technology should actually help reduce overall healthcare costs — for instance, patients wouldn’t need certain pain medications, as the exoskeletons will provide stronger muscle mass. They also could lower incidences of fractures.
The market potential is attractive, too. According to a 2013 report from the National Spinal Cord Injury Statistical Center, roughly 273,000 people in the U.S. are suffering from spinal cord injuries, and America produces roughly 12,000 new cases every year.
Best IPOs to Buy: Trupanion Inc (TRUP)
IPO Date: 7/17/14
Trupanion Inc (NYSE:TRUP) is a direct-to-consumer insurance provider for cats and dogs. The company, which does business in the U.S. and Canada, charges an annual subscription. In return, customers receive reimbursement for 90% of a veterinarian’s invoices, including diagnostics, medications, hospital stays and surgeries.
A key to TRUP’s business is its database. Over the past 15 years, the company has collected analytics on more than 7.5 million pet months of information and more than 1 million claims.
Along the way, the company has built a strong brand, which has been bolstered with an extensive direct sales force. TRUP also has formed key strategic relationships, such as with VCA Inc (NASDAQ:WOOF), the largest corporate veterinary hospital chain in the U.S., and MWI Veterinary Supply, a large distributor of animal health products and services.
Growth has been healthy — Q1 revenues climbed 30% year-over-year to $33.3 million — and Trupanion also expects to reach cash-flow breakeven by mid-2016.
And what puts this among the best IPOs is its thin penetration — insurance for cats and dogs stands at a mere 1% in the U.S.
Best IPOs to Buy: Arista Networks Inc (ANET)
IPO Date: 6/6/14
Arista Networks Inc (NYSE:ANET) builds high-speed, cloud-based networking systems. At the core of the technology is the Extensible Operating System, or EOS, which allows for advanced customization, though Arista’s products also offer key features including analytics, network visibility and workflow automation.
Arista’s team has deep roots in the tech world. For instance, co-founder and Chief Development Officer Andy Bechtolsheim helped to create Sun Microsystems in the 1980s, then launched Granite Systems — a top developer of network solutions — in the mid-’90s before selling it within a couple of years to Cisco Systems, Inc. (NASDAQ:CSCO).
Then there’s CEO Jayshree Ullal, who was the senior vice president of data centers at Cisco before coming to Arista in 2008.
At Arista, Ullal has been focused on building top-notch technology and keeping up a sizzling growth rate. In the latest quarter, the company posted a 51.2% increase in revenues to $173.5 million, and GAAP net income more than doubled to reach $31 million.
Here, too, market opportunity is huge. According to Crehan Research, global revenues for the data center switch market are expected to go from $6 billion in 2013 to $12 billion by 2017.
Best IPOs to Buy: Party City Holdco Inc (PRTY)
IPO Date: 4/16/15
When it comes to good times, Party City Holdco Inc (NYSE:PRTY) is the global expert.
Party City, which was founded back in 1947, is the largest party supplies wholesaler and retailer in the world. PRTY boasts roughly 900 superstores — which include 210 franchises — as well as 300 pop-up locations for the Halloween season. A typical store carries 25,000 SKUs.
In terms of its wholesale business, Party City does business across more than 100 countries. A key is PRTY’s global sourcing platform, which allows for low-cost manufacturing. But Party City also has an in-house design team that creates about 7,000 products per year.
Growth has been solid, with revenues increasing $1.6 billion to $2.2 billion from 2011 to 2014, and EBIDTA grew at a compound annual rate of 14.4% to $362.1 million in that time.
Party City is certainly among the best IPOs to buy right now, and it could be a good way to hedge against a slowdown in economic growth. After all, even in rough times, people still celebrate birthdays, weddings and holidays.
Best IPOs to Buy: Imprivata Inc (IMPR)
IPO Date: 6/26/14
Imprivata Inc (NYSE:IMPR) seems to have everything an IPO investor could want. IMPR is a play on the healthcare industry (it provides security) and deals in sophisticated mobile apps. Meanwhile, growth has been stellar, including Q1 revenues that zoomed 32% higher to $25.6 million.
Regardless, IMPR hasn’t generated a ton of buzz, but if the company keeps up its strong execution — which seems likely — investors could enjoy a lucrative payoff.
Imprivata’s technology provides numerous benefits. For example, the company uses biometrics, proximity cards and hands-free authentication — using technology such as Bluetooth — to help substantially reduce nurses’ workload. There’s also Imprivata Cortext, which enables secure communications with patients and family members.
But the real gem could be Imprivata Confirm ID, a comprehensive system for electronic prescriptions. The federal government has put in place regulations to push the healthcare industry toward digital solutions, and more states are doing the same — and that should push demand for Imprivata Confirm ID for the next few years.
Best IPOs to Buy: Virtu Financial Inc (VIRT)
IPO Date: 4/15/15
Virtu Financial Inc (NASDAQ:VIRT) is a leading high-frequency trading firm. Last year, the company tried to pull off an IPO, but the deal was shelved amid furor over Michael Lewis’ best-selling book Flash Boys. The author took an unflattering (and common) look at high-frequency trading, saying that the industry is rigged against retail investors.
But the uproar subsided, and Virtu Financial finally came public in April. So far, performance has been OK — shares are up 17% from their IPO price, but flat since their first day of trading.
Still, more upside could be ahead.
VIRT is essentially a highly automated system that processes huge amounts of trading volume for more than 11,000 securities across 225 unique exchanges, and boasts sophisticated risk-management systems. In fact, Virtu has posted just one losing trading day since Jan. 1, 2008.
To make money, the firm takes a few cents per trade. But pennies add up quickly, with VIRT booking net income of $190.1 million in 2014 on revenues of $723.1 million.
It’s true the top line has been somewhat muted over the past few years, but that can be pinned on relatively low volatility providing fewer opportunities to crank out trades.
But that could change, especially with Wall Street expecting the Federal Reserve to eventually shift its interest-rate policy.
Best IPOs to Buy: Upland Software Inc (UPLD)
IPO Date: 11/6/14
While cloud technology is certainly the face of the future, not all cloud IPOs do well. Just look at Upland Software Inc (NASDAQ:UPLD), whose shares have lost almost half their value since the company’s November IPO.
But this could be an interesting opportunity for brave investors. UPLD still is a quality company — one focused on providing cloud solutions for project management. Yet the software is much more than about tracking activities and allowing for enterprise collaboration; Upland offers sophisticated analytics, allowing for “what-if” and scenario analysis, and also provides strong security and governance systems.
The technology has certainly resonated, with UPLD boasting 1,600 customers, from small companies to global corporations across industries from financial services and retail to education and healthcare.
Growth hasn’t been a problem of late, either; revenues for its most recently reported quarter jumped 36% to $16.5 million, and adjusted EBITDA soared 712% to $698,000.
UPLD’s valuation is what’s most interesting. After adjusting for the $31 million in the bank, Upland’s market value is a mere $66 million — which comes to a mere 1 times revenues. That’s downright cheap for a fast-growing cloud operator considering many others in the industry can trade for five to 10 times sales.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.