Finding Bargains in the End of June IPO Pricing Collapse - Part 3

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This is the third part of a series reviewing the large number of IPOs pricing below the original midpoint with an incredible five on June 26 alone. The first two articles (see parts 1, 2) focused on the stocks that priced below the original midpoint. This part will focus on whether any value exists in the four stocks that didn’t disappoint. Did the market get these right or should they have been valued even higher if it had been a normal week?

The original articles had tables reviewing all the stocks that IPO’d the last week of June. Probably overlooked that week were the stocks that priced in line with expectations as the 104% first day gain by Noodles & Company (NASDAQ: NDLS) and the eventual 100% market gain by Prosensa (NASDAQ: RNA) overshadowed the two that were flat.

This leaves both Esperion Therapeutics (NASDAQ: ESPR) and Luxoft Holding (NYSE: LXFT) as stocks that didn’t price below the range or gain 100%; therefore, possibly offering some value.

Considering the weakness in the IPO market during the end of June, one has to wonder if any of these that priced at or above the range are worth some research to check the value.

Cholesterol control

Esperion Therapeutics had a relatively uneventful IPO considering the weakness during the final week of June. The stock priced right at the midpoint of the original $13 to $15 proposed range. It raised roughly $70 million before fees by selling 5 million shares. The stock now trades considerably above that range, providing nice gains to investors that bought the offering.

The company is developing a treatment for elevated levels of low-density lipoprotein cholesterol and other cardiometabolic risk factors. As a development stage company, it does not have any products approved for sale and has not generated any revenue. The stock has a market cap of $250 million and the proceeds of the offering will be used to fund research and testing.

Software development services

Luxoft Holding, a spin-off of Russia-based IBS Group’s offshore IT services business, priced at the midpoint of the original $16 to $18 range. The stock had a nice pop on the initial day of trading and has since risen to over $21. The company only sold 2 million shares in the offering to raise roughly $35 million. The parent sold over 2.6 million shares that Luxoft will not receive the proceeds.

The company now has a market cap of $650 million while booking $315 million in sales for the 12 months ended March 31, 2013. With revenue growing roughly 20% per year, the stock appears cheaply valued with net income of $37.5 million over the last 12 months. In addition, the market's adverse pricing for emerging markets could make this stock a gem down the road.

Fast-casual restaurant

Noodles had one of the largest first day gains with the stock soaring 104%. Not bad considering the stock priced at 29% above the original range and even above the revised $15 to $17 range. The stock that priced at $18 opened at $32 and eventually closed at $36.75. It hasn’t looked back either, now considerably above that price after making a run above $50. The company raised over $90 million by selling 5.4 million shares.

The fast-casual concept that sells pasta bowls now has a market cap of $1.2 billion with sales expected to reach $350 million in 2013. The company only saw revenue grow 16% in Q1 2013, making the valuation a question. The original midpoint of $15 would’ve provided an attractive entry price, but the current valuation up nearly 200% is towards the high end unless Noodles stores are able to expand faster.

Late-stage biotech

Prosensa is a late-stage biotech developing treatments for Duchenne muscular dystrophy. The company raised over $100 million in gross proceeds by selling 7.8 million shares at the high-end of the previous range of $11 to $13. The stock surged on the first trading day to close at $19.25. The stock hasn’t looked back, trading above $27 now, providing IPO investors a 100% gain.

The company only booked $11 million in license revenue for the 12-month period ending March 31, 2013. It has several promising drug candidates with a pivotal Phase III study expecting results in Q4 of 2013. At a current market cap of over $800 million, investors clearly expect positive results from that trial.

Bottom line

This group of IPOs offers a mixed bag with the 100% gainers hard to follow and the two stocks pricing at the midpoint much more attractively priced. The Russian tech firm offers a compelling valuation while Esperion likely requires more detailed research to gather whether that drug company has any potential.

Noodles is an interesting fast-casual concept though it really needs to see faster growth to support the current multiples. As with the other stocks, investors need to really scrub the first public earnings reports of the interesting stocks in order to gather the most accurate data.

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Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned.  The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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