Handicapping a Stock's Post-Lockup Moves

Initial ups or downs can tell you how shares will do after a lockup, but watch for other signs.
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You never get a second chance to make a first impression, and nowhere else is this more true than with an IPO.

Alliance Data Systems

(ADS) - Get Report

, a Dallas-based provider of transaction services, is first in this week's lineup. It went public on June 7 and saw a 16.7% gain on its first day. Not bad, considering that the underwriters reduced the price range and the share size before the IPO. The stock behaved better throughout the day, though, and closed at the day's high of $14.

I love seeing an IPO ramp up during the first trading day, because it shows that people have confidence in it and that serious buyers are involved. Right now, ADS is trading at $17.35, more than 40% above the issue price of $12. Normally you'd expect insiders to sell after the lockup expires, following a rise like that, but because the company is largely owned by a partnership, there probably won't be much selling.

Every once in a while, a deal comes along that does not live up to the hype. Take

Torch Offshore

(TORC) - Get Report

, for example, which provides subsea construction services for offshore oil and gas drillers. At first, the offering had some pretty decent buzz around it, and the company managed to price the deal at the top of its $14-$16 price range. This is usually a good sign that the stock is in better shape than expected.

The stock opened at $18.11 and quickly saw a high of $19. At this point, things were looking up, but a downfall was soon to follow. Just after the high, the stock began to lose ground and ended up closing at a low for the day at $16.35, leaving the day with only a slight gain of 4%. I wish I could say that this was as bad as it got: The stock is trading below $5 right now. Locked-up shareholders will most likely look elsewhere for their holiday spending money.

Finally, let's take a quick glance at

United Surgical Partners

(USPI)

. (I'll do a more in-depth analysis next week.) This deal performed much better than expected. The health care company priced 9 million shares at $14, the middle of the price range.

At this point, we were conservative with companies in the health-related fields and rated the deal "hot," but not a highflier. We were pleasantly surprised. The deal traded up 29.4% for the day, closing at $18.12.

When a deal can build on its price throughout the day, this is a good indication that the stock isn't just hype. United Surgical is currently trading at $16.48, still significantly above its IPO price, and the number of insiders is fairly large. In this case, I wouldn't be surprised to see some selling after the lockup expiration.

Here is the list of lockup expirations for this week:

Michael Falbo is an analyst for

ipoPros.com , a Boulder, Colo.-based research boutique (now a wholly-owned subsidiary of TheStreet.com) specializing in the analysis of equity syndicate offerings. This column is not meant as investment advice; it is instead meant to provide insight into the methods of new and secondary offerings. Neither Falbo nor his firm has entered indications of interest in any of the companies discussed in this column. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Falbo appreciates your feedback at

mfalbo@ipopros.com.