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7 Undervalued IPO Stocks That Could Rebound in 2012

Stocks in this article: GEVO SZYM KIOR P DMD VHS ZIP

Pandora Media

Pandora Media (P) accounts for 4% of all U.S. radio listening, yet its share of the radio ad market is just 2%. That's why some analysts think that Pandora can boost revenues at a solid annual pace, even if listenership grows much more modestly. But few are focusing on the company's growth potential right now. The stock opened at $20 on its first day of trading last June, but when the stock market was routed last July and August, shares stumbled into the lower teens, and despite a few subsequent head fakes, now trade below $13.

It's easy to forget that this busted IPO is still in the midst of a powerful growth spurt: Sales likely rose more than 100% in fiscal (January) 2012 to around $270 million and could rise another 50% in fiscal 2013 according to analysts. Analysts at Citigroup suggest that shares could roughly double to their $25 target price, as the company is pursuing a range of growth initiatives in the auto and mobile segments.

Still, investors will need to see how all of this sales growth translates into rising profits. Even Citigroup concedes that Pandora is unlikely to be profitable in the next few years. Nevertheless, this broken IPO has fairly low expectations embedded in its stock price, implying more reward than risk.

Pandora shows up on a list of 4 Tech Stocks for 2012.

Demand Media

Demand Media (DMD) surged 30% on Friday, Feb. 18, thanks to solid quarterly results. Then again, it still trades for less than half of the IPO price.

Demand Media was the ultimate search engine stock, deploying a veritable army of freelancers to drum up content that would score high in Google's page view rankings. Trouble is, Google re-jiggered its search formula, and Demand Media's traffic took a hit. Sales had grown at least 10% sequentially in every quarter, from the first quarter of 2010 to the first quarter of 2011, but then got stuck in the $80 million range.

Yet just-released fourth quarter results imply that Demand Media has finally adjusted to a post-Google world. Sales moved up to $84 million, and thanks to cost cuts, the company reported its first operating profit in five quarters.

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