NEW YORK - Of the 210 IPOs between June 1 and Dec. 31 of 2000, only 53 stocks now trade above their offering price.
Though not a decisive indicator of a newly public company's health, it is a good sign when, after several months, a stock trades above its offering price--particularly in the current market. "That shows the company has some investor backing," says Richard Peterson, market strategist at Thomson Financial.
Peterson adds that investors should scrutinize the longer-term viability of such companies by taking a critical look at the business model, earnings prospects and competitive pressures.
One example: eFunds (nasdaq: EFDS - news - people ), formerly a subsidiary of check-printing concern Deluxe (nyse: DLX - news - people ), which provides electronic transaction processing services and risk management. In June 2000, eFunds went public with 5.5 million shares at $13.00 each. EFunds sank to $6 by October but staged a dramatic recovery. Its recent price: $22.50.
What's behind the rebound? "I think you had a lot of short covering," says Gary Prestopino, vice president and senior analyst at Barrington Research Associates, a Chicago-based brokerage firm. Short covering is when investors close out short-sale positions by purchasing the shares borrowed from brokers. "The company subsequently put out some good quarterly numbers," adds Prestopino.
As for other positives, Prestopino notes that 90% of eFunds' revenue is from multiyear contracts. In its latest fiscal year, reported in December, eFunds earned $4.6 million on sales of $418 million, or 11 cents per share. Security analysts expect profits of 85 cents per share this year and $1.23 in 2002, giving eFunds estimated price-to-earnings (P/E) multiples of 27 and 18 for 2001 and 2002, respectively.
Full story at Forbes.com