Worst Performing IPOs of the Year - Take Two

Shas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A few days back, in another publication, I reviewed some of the worst performing IPOs of the year. The list contained three major duds: Envivio, Zynga and CafePress. The common string through these IPOs was that they all belonged to the heated up Internet/web segment. Thus, these stocks were not only hyped up but were also fully priced, which limited their upside potential, post-listing. However, the malady of IPO mispricing is not limited to hotshot sectors. A look back at the worst performing IPOs list for the year reveals that IPOs belonging to not-so-hot sectors can take their investors to cleaners. Any review of sour IPOs will teach you that, as an investor, you need to exercise due diligence even in the case of primary offerings and not to blindly follow the prospectus and the crowd. So, let’s take a look at IPO laggards outside of the Internet/web sector.

Ceres (NASDAQ: CERE): The IPO had a good debut as it closed its first day with 14 percent gain. However, do not be swayed by the first day performance; the company had to mark down its IPO price to make it more attractive. Ceres initially priced the IPO in the range of $21 and $23 and later trimmed it down to $16 and $17. Eventually, the shares were issued at $13 apiece. If the frequent price cuts were not big enough red flags, then any diligent investor would have noticed the company’s history of constant losses. Ceres had closed its previous financial year with a net loss of $36.3 million.

The company focuses on developing seeds through biotechnology. However, according to its own estimates, the company would not be able to introduce such seeds until 2016. Currently, all its seeds are developed through conventional breeding techniques. Even after the introduction of biotech-enabled seeds, the marketing of such products is not going to be an easy task, as they would need substantial investment for preparing the market. So far, the IPO has lost 73 percent of its value and, given the bumpy road ahead, it seems highly unlikely that investors will get to see their money again.

Enphase Energy (NASDAQ: ENPH): Just like Ceres, Enphase Energy also reduced its anticipated IPO price in order to attract investors and then ended its debut day on a positive note. Enphase Energy marked the first solar company IPO since Daqo New Energy in 2010. The company initially planned to price its IPO in the $10 to $12 range. However, the final pricing for the IPO stood at $6 per share. Again, here is a company trying to capture an unestablished market. Enphase Energy develops microinverter systems focused on domestic and grid use of solar energy. Essentially, the company's fortune is intrinsically tied to the solar energy market, and it has yet to turn any net profit since its inception.

However, the IPO may have looked attractive as the company raised a substantial amount of funds privately before making its public debut. Various investment outfits, such as RockPort Capital, Bay Partners and Kleiner Perkins Caufield & Byers, augmented their prior holdings by buying more shares at $6 apiece. The stock price currently stands near $3.30. So much for following the lead of knowledgeable big players! The share price is currently about 58 percent down. According to the company’s own estimates, it is unlikely to post any net profit in the near future, as it expects to have high expenses for growing the business. So, will the IPO investors be able to break even?  I would not bet on that.

Midstate Petroleum (NYSE: MPO): The company is an oil exploration outfit and draws most of its revenue from oil and the remaining from natural gas. Midstate Petroleum also boasts of relatively competent and known management. However, like the above two, even this company had to cut down its IPO price to the final level of $13 per share from initial pricing in the range of $16 and $18. The stock showed marginal upward swing on the debut day, but since then has lost 50 percent of its value.

The main decline is due to the fickleness of oil and gas industry. The segment is full of competition and volatility. With its IPO, the company also saw decline in private investor First Reserve’s stake. While Midstate Petroleum is on a growth trajectory with regard to revenue and is improving its profitability too, the stock price is likely to remain under pressure due to intense competition and geopolitical factors.


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