RETK - Greater revs. than ARBA or CMRC - Report.
Trading IPOs
Wednesday, November 24, 1999 6:32 PM
by Henry Lee
Recently, Retek Inc. (RETK) made its debut to the Market with a successful Initial Public Offering (IPO). When shares began trading on the open market, shares of Retek were in the low $30 range, valuing the company at about $1.5 billion. The investors who were allocated shares at the offering price of $15 a share instantly doubled their investment. In the following days Retek shares continued to trade up into the $50 range. For the average investor, trying to figure out which way an IPO will trade can be overwhelming. An IPO stock's price can fluctuate very rapidly and the lack of trading history and company information can lead to widely varying opinions on valuation. The indecision often leaves investors waiting on the sidelines. With Retek, there was a backdoor in to playing the hype that goes along with the IPO.
While I have no idea what the fair market value for a company like this should be, I do think this is a company that can have a viable business for years to come. Retek Inc. provides web-based, business-to-business software solutions for retailers and their trading partners, enabling retailers to use the Internet to communicate and collaborate with the suppliers, distributors and others in the supply chain. The hot Internet business-to-business industry has created billion-dollar companies overnight. The two leaders in this space, at least in the awareness of the investing public, are Ariba, Inc. (ARBA) and Commerce One, Inc. (CMRC). Both can boast of market capitalizations nearing $10 billion. Their stock rise has been fueled by the news surrounding their several high profile investors and client relationships. Combined, the two companies have sales of $63.1 million dollars with losses of $64.1 million. Interestingly, Retek, Inc. has greater sales than both Ariba and Commerce One combined with $73 million and a profit of $6.8 million dollars. Retek sure looks like a real business to me.
While making money is no sure sign that a stock will be an outstanding performer, the Retek IPO did have indications of strong demand before it was priced. By doing a little bit of research, a diligent investor would have noticed that Retek, Inc. was actually a spin-off from HNC Software, Inc. (HNCS), a publicly traded company. The SEC filings reported that HNC Software would own 80% of Retek after the IPO. Up until a few weeks ago, HNC Software was trading in the $30s and now can be found in the high $60 range. Even as close to two days before the Retek IPO, HNCS was trading at $50.
A purchase of HNC Software shares or even call options would have reaped a grand reward but blindly investing in the parent company of an IPO is far from a sure thing. If you do decide to try and play an IPO in this manner, there are a few things to keep in mind. No one really knows how hot an IPO is going to be until the day it opens for trading so you might purchase shares in a parent company only to find that the IPO is a dud. The shares of the parent could tumble even faster than the typical IPO. The IPO very well could open up at a huge premium but investors may be over-enthusiastic in their expectations and sell-off shares after the IPO fails to gain $600% on the first day. There could be many reasons for the parent company to sell-off but probably the primary reason is the old saying, "Sell the news." People buy stock because they anticipate that others will buy more stock after them and push up the price. Once the IPO comes out, the catalyst for investor hope in the parent company is gone. At that point, everything surrounding the IPO that could move the stock becomes reality.
You should also find out what the parent company plans to do with the shares it owns in the stock going public. Do they plan to sell-off all of their shares or dividend them out to shareholders? Some companies like CMGI Inc. (CMGI) and Safeguard Scientifics Inc. (SFE) allow investors to participate in the offerings of their subsidiary companies. These factors can have a great influence on the price movement of the parent company. Do your research before you invest. You can visit the IPO section of the Internet Stock News web site by going to ipo.com or clicking on the "IPO Link" from the homepage. |
