NEW YORK (
-- Many Chinese IPOs have seen success in the aftermarket, and
Mecox Lane Limited
, which debuted on the Nasdaq exchange Tuesday was no exception.
The Shanghai-based online apparel retailer priced an offering of 11.7 million shares at $11 each, and saw the stock rocket almost 60% to close at $17.26.
Mecox's surge follows the market's warm reception of
Country Style Cooking Restaurant
, the Chinese fast food chain that began trading at $24 in September and currently changes hands at roughly $34 a share for a gain for 38%.
Another example is
China New Borun
, which sells alcoholic beverages. The company went public in June at $7 per share and the stock now trades at around $16, a whopping 140% gain.
Then there's the rare earth mineral company
, that has soared to $35 from its original price of $12.
But with every IPO success story, Chinese or no, there seems to an equally dismal offering.
One such name is
, a pharmaceutical company that launched in August at $10 a share and has sunk to $6.
hasn't fared much better as it dropped from an initial $5 a share to $4 for a 20% decline.
But it's not just small drug companies that have fallen flat.
went public at $17 and has tumbled to $13.50, also a 20% loss.
So investors need to do a little homework if they want to informed decisions about these IPOs. Here are this week's offerings and their chances of success.
Mecox Lane Limited
began trading on Tuesday, but the advance signs pointed to success. It is China's leading online platform for apparel and accessories with 79% of its sales coming via the web.
China's middle class is growing and has money to spend. Net revenues grew from $61.4 million in 2007 to $177.7 million in 2009. Retail sales of women's apparel are expected to grow 37% in China.
Mecox has also expanded its physical stores increasing from 27 branch stores in 2007 to 478 as of June 2010. The funds raised in the IPO are expected to be used to the improve the customer's e-commerce experience and build a logistics center.
Le Gaga Holdings
has a very positive story as well. It is a greenhouse grower that is capitalizing on the increasing demand by the newly affluent to have fresh vegetables. The Chinese diet is moving to more fruits and vegetables as disposable income increases.
Le Gaga has 40% profit margin for the year ended in March 2010 and 31% compounded annualized earnings growth. IPO Analyst Francis Gaskins notes that, at 29x annualized earnings, it is priced like a "growth" stock.
At first look
seems to be a good deal, but Gaskins points out that at 149x annualized earnings for the nine months ended in September 2010, it's too expensive.
Plus, of the $119 million being raised, $100 million is going to repay debt. That leaves only $19 million to fund future acquisitions and for working capital. This is a problem, since most of ExamWorks' growth has come through acquisitions.
The company added 27 businesses in just 2 years from 2008 to 2010. Plus, it's internal growth rate has dropped from 17% in 2009 to 14% in 2010. While this fragmented market presents opportunities, its questionable that ExamWorks will have enough money to capitalize on that.
First Winds Holdings
( WIND) has sold its equity interests in certain projects. This arrangement entitles the investors to most of the cash flow and tax benefits until they achieve their targeted investment returns, which could take 10 years.
So new investors will have to wait some time before First Winds gets to keep this cash.
Plus, there's no guarantee that the tax benefits will remain in place. Congress must vote to extend them. Competition is heavy in the wind power business and the price for the power is high compared to natural gas. While many investors like the idea of wind power, the bottom line for this company isn't so powerful.
is feeling so confident about its offering, that its lifted its original filing from $200 million to $230 million. Biotech IPOs haven't received warm welcomes of late and Pacific Biosciences is in an increasingly crowded DNA sequencing field.
Plus, this market wants proven companies and Pacific Biosciences is all about potential. The company has already raised $400 million in venture capital money, while having lost $63 million for six months ending June 2010.
is already showing cracks and it's yet to make its debut.
Initially, it filed for a $165 million offering and has since lowered the amount it's seeking to $135 million. Revenue has also fallen for the first six months of the year, even though earnings are up. Interest expense eats up one third of the revenue, making this a highly leveraged company.
Also, a large portion of the offering proceeds will go to the private equity investors. This ship may sink once it hits the aftermarket.
--Written by Debra Borchardt in New York.
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