For the most part, it’s been an uninspiring year for new stocks. Consider that the Renaissance IPO ETF (IPO) is off about 5%, while the S&P 500 is up over 1%.
But this is actually a good thing.
Not only are there plenty of new stocks that sport attractive valuations, the quality of the companies is also fairly strong.
Let’s face it, when the initial public offering market gets dicey, Wall Street tends to focus on those operators with more solid prospects.
OK, so what are some of the interesting new stocks? Well, here are four to consider.
Respect This IPO: Apigee (APIC)
The business of Apigee (APIC) seems prosaic: That is, the company develops so called application programming interfaces that help connect data and systems. The technology is incredibly important, however, as companies move toward the cloud, mobile and even the Internet of Things.
As for Apigee, the company has built a top-notch platform that allows for the development of APIs, as well as security, analytics and transaction processing.
And yes, growth has been robust. In the latest quarter, revenues jumped by 26% to $18.7 million. Keep in mind that the focus has been on selling to large enterprise customers like Honeywell (HON) and Adobe (ADBE). In other words, this is a testament to the power of the Apigee technology.
But the company is now expanding its target market, with the release of a new product for small and medium-sized businesses. All in all, this should help to boost growth in the coming years.
Yet Apigee is not about growth at any cost. The company is also focused on achieving positive cash flows, which is expected in about a year-and-a-half from now.
Respect This IPO: NantKwest (NK)
NantKwest (NK), a biotech company focused on immunology treatment for cancer and other diseases, had impeccable timing with its IPO. The offering came in late July, right before the biotech market plunged.
So in the case of NK stock, it quickly went from $38.48 to $10.10.
Ouch!
But lately, NK has been showing some strength. Then again, the company is using cutting-edge biotech approaches, which involve using a natural killer cell with a T cell to attack cancer. Essentially, this means leveraging a patient’s own immune system.
Granted, NK is still in the early phases, having just completed a Phase I trial. But it is important to consider that the CEO is Dr. Soon-Shiong, who is a veritable rock star in the biotechnology field.
During his storied career, he has published over 100 scientific papers and has been issued 95 patents. He also performed the first encapsulated islet stem cell transplant in a diabetic patient in the United States.
But Dr. Soon-Shiong has also been successful at commercializing blockbuster drugs, such as the cancer treatment Abraxane. He would eventually sell the drug and his company, Abraxis, to Celgene (CELG) for $2.9 billion.
In fact, Dr. Soon-Shiong has sold other companies, such as American Pharmaceutical Partners (at roughly $5.7 billion).
As for NK, he realizes that it could easily take a few years for any treatment to hit the markets. So in the meantime, he is certainly mindful of shareholder value.
To this end, he recently announced a $50 million buyback program. It’s an unusual step for a newly minted IPO. But hey, Dr. Soon-Shiong has had a great career by being unconventional.
Respect This IPO: Wingstop (WING)
Investors may have lost interest in Wingstop (WING), but its customers haven’t.
After all, the company certainly has a standout menu, which includes 11 distinctive flavors of bone-in and boneless chicken wings, along with sides like hand-cut fries, coleslaw, bourbon baked beans, potato salad and freshly baked yeast rolls.
But there is also a compelling business model. Consider that the typical location is only about 1,700 square feet, which means that real estate costs and labor expenses are lower. Wingstop also uses franchises, which means that there is little capital required.
In fact, the cash-on-cash return for a franchise is 35% to 40%. This helps explain why 74% of existing franchise owners buy the new ones.
The formula has definitely been paying off in terms of the growth metrics. For this year, WING will likely ring up 12 consecutive years of domestic same-store sales increases.
And there is still much runway left. Currently, there are 807 locations. But the company thinks the capacity in the U.S. is for about 2,500 locations.
Respect This IPO: Rapid7 (RPD)
Lately, the cybersecurity market has been in a funk. No doubt, one of the catalysts is FireEye (FEYE), which had a disappointing earnings report. Keep in mind that the company noted that there was a falloff in breaches from China.
Yet, this country is far from the only culprit, of course — hackers hail from all around the world, right? Definitely.
And this is why there are some interesting opportunities, as seen with the recent IPO of Rapid7 (RPD).
Granted, it can be tough to differentiate among the numerous operators in the space. But when it comes to Rapid7, the company essentially represents a next-generation provider since it focuses on using the cloud and intensive analytics.
The result is that there tends to be higher accuracy in targeting threats as well as less of a burden on the IT infrastructure. All in all, this is the kind of combo that piques the interest of both corporate customers and governments. Actually, Rapid7 has over 4,400 customers, up 32% year-over-year.
And all of this has translated into strong top-line growth. In the latest quarter, revenues jumped 39% to $28.3 million, which handily beat the Street expectations of $26.2 million.
Now, as seen with companies like IBM (IBM) and Cisco (CSCO), the cybersecurity market has been a source of mergers and acquisitions. So given the nice growth metrics and solid core technologies, it would not be surprising that Rapid7 would be of interest to a suitor at some point as well.
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.
