HomeAway IPO a Solid Choice

NEW YORK (TheStreet) -- HomeAway is a vacation travel site with a huge member base on multiple continents. Unlike most IPOs it has profits as well. HomeAway (which plans to trade under the symbol AWAY) controlled expenses, sought out key acquisitions and is focused on profits from travel-related services like insurance for property damage, credit card processing and travel insurance, adding those to the main revenue generator, the annual subscription fees from members.

If you look at most recent IPOs, although there have been a few standouts, most have ended up trading below their initial offering prices within weeks of having gone public. Even the much-heralded Yoku.com ( YOKU) recently traded almost all the way back to its IPO price after having almost tripled that value in the first six months. It has been that kind of market of late.

So how do I believe that HomeAway will do post-IPO? Actually, given the revenue streams and good growth rates, I would expect a pretty good reception. Expectations aside though, I would let the stock settle before trying to buy it if the price trades higher than the IPO. If weaker, I would target a 10% to 20% discount as an entry price range. If the general market struggles over the next couple months, that may become possible. At that type of a discount you can make the case for the buy.

Barring such a discount, I would instead wait for a good month or two of trades to let the chart build out. By waiting, a good entry spot can be ascertained -- an entry point where the potential reward is more than the risk of entry. As a technician, I like to see where the anchor bars form so that I know where likely buyers are probably lurking. For an IPO, the first few days or even weeks, the IPO price is where support should be found. If it falls under and closes lower than the IPO price, then the pressure builds to push it lower. That's the reasoning for a 10% to 20% discount being needed to buy before the chart builds out.

Although an IPO will trade independent of the market initially, a weak market will pull and IPO lower eventually. Because this market has been weak, there is no reason to believe that on a short-term basis that has changed. Thus, if you are buying an IPO in this current market environment you need to err on the side of patience and lower prices.

At the time of publication, Little held no positions in any stock mentioned, though positions can change at any time.

L.A. Little, author, professional trader and money manager, writes daily on his own educational Web site for traders and investors. He has been featured in numerous publications and is the author of Trade Like the Little Guy. His new book, Trend Qualification and Trading, details the principles and techniques he writes about on TheStreet. Little�s background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, Little espouses a simple technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and trend qualification, he provides a breath of fresh air to an otherwise crowded room of derivative indicators with an emphasis on technical minutiae.

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