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Facebook Investors: Be Wary of 2011’s IPOs Lessons

Performance on 2011's IPO's is mixed and caution is advised


Beyond a doubt, 2011 was the year of the initial public offering (IPO).

And, while the volatile summer months pushed several big names under water, a few companies sprinted out of the gate and haven’t lost their momentum yet. As we near the much-anticipated Facebook IPO (which is scheduled for next Friday), let’s take a look back at the past year’s biggest successes and failures to see if we can learn from this experience.

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. So, while some of these newly-minted stocks have “earned” their right to be featured in Portfolio Grader, we’ll have to wait a little longer for the others.

One of the year’s hottest IPOs was LinkedIn (NASDAQ:LNKD), which premiered on May 20, 2011. Within the first trading day, the stock skyrocketed 109%. Since then the stock has consolidated a little, but still remains a hefty 36% above its initial price. LNKD is not currently listed in Portfolio Grader but it will be added in the coming weeks because we are approaching its one-year anniversary for its IPO.

On the flip side, one of the biggest disappointments for 2011 was another Internet Information Provider: Groupon (NASDAQ:GRPN). This stock made its debut last November and was touted as the largest U.S. web IPO since Google. But, just a few weeks after going public, the stock tanked 20% as large institutional investors bailed on GRPN. The stock has continued to decline since then and is trading 63% below its launch price.

In addition to LinkedIn and Groupon, we had a number of high-profile IPOs spanning the tech, travel and consumer products industries. Let’s see how these companies have fared since then:

Company Ticker Industry IPO Launch % Gain/Loss
Groupon GRPN Internet Information 4-Nov-11 -63%
Pandora Media P Radio Broadcasting 17-Jun-11 -55%
Skullcandy SKUL Industrial Electrical Equipment 22-Jul-11 -41%
Tevana Holdings TEA Farm Products 28-Jul-11 -31%
Zillow Z Business Services 20-Jul-11 28%
Zynga ZNGA Internet Services 16-Dec-11 -27%
Dunkin’ Brands DNKN Restaurants 29-Jul-11 +29%
Spirit Airlines SAVE Airline Carrier 27-May-11 +93%
LinkedIn LNKD Internet Information 20-May-11 +36%

Additionally, three of last year’s IPOs have been officially trading for 12 months, so they have been newly added to my PortfolioGrader Tool:

Company Ticker Industry IPO Launch % Gain/Loss
Zipcar ZIP Consumer Services 11-May-11 -65%
GNC GNC Drug Stores 11-May-11 100%
Boingo WIFI IT Services 11-May-11 -14%

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.

In the meantime, I’ll be keeping a close watch on any developments with the Facebook IPO, and I’ll be sure to send you a “notification” if I uncover anything big.

Article printed from InvestorPlace Media,

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