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Strategies & Market Trends : IPO and Other Stock Plays
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From: MLD387/5/2007 12:25:41 PM
   of 13331
 
How to Spot the Next Hot IPO
fool.com

includes: The pitfalls of IPO investing

...There are naturally plenty of dogs in any IPO litter. XTENT (Nasdaq: XTNT) has shed 35% of its value in the five months since it went public at $16 a share. The development-stage maker of potentially revolutionary drug-coated stent products apparently has impatient investors who tired of a wider loss on a lack of revenue this past quarter.
I like to weed out the potential portfolio-killers by looking for a few warning signs.

Is the IPO an exit strategy? If there are too many executive insiders selling, it may be.
Is this an inferior company trying to ride coattails? Many investors learned this the hard way in the dot-com bubble days, when pretenders like Pets.com and Webvan collapsed. Make sure that new stocks are as good -- if not better -- than their publicly traded peers.
Is the valuation realistic? Underwriters often reach too high for a company where the prospects are much lower.
Is it a forced IPO? I hate it when a company rushes to go public as niche enthusiasm is waning. It's as if they've heard the last-call order from the bartender and rush to go public like they're scrambling to order one more beer. Whether it's a nervous private equity firm or a cash-strapped upstart, I avoid those "me too" copies like the plague.
So, where does that leave you? The IPO pipeline is never dry. There may be fewer new issues going public when the market is correcting, but quality ones find a way to earn their ticker symbols....
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