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TheStreet Open House

Which Broken Chinese IPO Will Rebound?

Stocks in this article: MCOX CTE BITA

By David Sterman of StreetAuthority

NEW YORK ( StreetAuthority) -- One of the curious aspects of the recent rebound in the initial public offering market is the heavy slate of China-based companies in the mix. It remains pretty hard for U.S.-based companies to line up a deal, but investment bankers have had little trouble if the word "China" is part of the offering.

But bankers may have a hard time lining up more China-based deals in the near term. Many of the recent IPOs have traded down after their debuts, even after those debuts often saw a lowered offering price to make a deal happen.

Why the underwhelming performance? First, Chinese stocks have come under pressure recently as concerns build that the Chinese economy is overheating. Second, there seems to be little "after-market support." Typically, analysts at a firm's underwriters tend to talk up a stock once the quiet period is over. Yet investment research support has been scant for many of these recent China-based IPOs. As a result, many of them are now down 25% or more form their offering price.

Let's look at each of these lagging IPOs to spot the best rebound candidate.



Mecox Lane

Note to the executives at Mecox Lane (MCOX - Get Report), the Chinese retailer and e-commerce play: "Welcome to the United States, where you pull off an IPO, deliver disappointing results, and then get hit with a wave of vulture-like lawsuits claiming wrongdoing." That happens whenever a stock takes a big hit, but it must be jarring to foreign firms nonetheless.

Mecox Lane targets young urban female shoppers with a range of discounted clothes and furnishings through its Web site and nearly 200 stores. The company recently reached $200 million in annual sales and is just now profitable. In late November, Mecox reported third-quarter results and issued fourth-quarter guidance that were OK, if uninspiring. Investors were a bit spooked by a spike in expenses that led to gross margins that were a few hundred basis points below levels seen in previous quarters. Unfortunately, we've often seen companies that seemingly have great quarters going into an IPO, and less-than-stellar results soon after they go public.

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