Give Twitter (NYSE: TWTR) credit: its IPO lived up to the hype.
Twitter’s stock shot up by 73% just one day after going public above its expected range at $26 per share last week. That’s a far cry from what Facebook (NASDAQ: FB) did in its May 18, 2012 market debut. The social network famously fell flat on its face after debuting at $38 a share, with the stock virtually unchanged in its first day of trading. It subsequently plummeted over the ensuing six months.
Twitter – the second-largest IPO for a technology company after Facebook – hasn’t done that yet. At $42.90 entering Tuesday trading, it’s still holding on to a 65% gain since going public.
I still say it’s wise to avoid the stock, at least for a few months. Twitter still isn’t profitable, with earnings per share of negative $0.20 over the past 12 months. In fact, the company has never been profitable. That doesn’t necessarily mean that Twitter won’t eventually figure out how to make money, but it does cause me to question its monetization strategy.
Recent IPOs that Trump Twitter
For my money, there are better long-term investments out there, even among the hot group of recent IPOs to debut in 2013.
With the S&P 500 up more than 24% year-to-date, more private companies are jumping into the public pool than at any time in years. Year-to-date, 195 companies have gone public – the most since 2007.
Not all of them are winners. Hoping to strike while the iron is hot, some companies probably went public earlier than they should have. However, the sheer volume of IPOs this year has produced some true diamonds in the rough.
Three in particular look like better long-term plays than Twitter.
INSYS Therapeutics (NASDAQ: INSY) is one recent IPO that jumps out. The Arizona-based pharmaceutical company markets a synthetic marijuana drug to treat cancer pain. It went public in May at $8 per share. It opened Tuesday trading at just over $46 per share. That’s good for a 475% return so far.
Despite being one the best performing and most recent IPOs of 2013, Insys is still cheap on a forward-PE basis. Shares are trading at 26-times forward earnings. That’s a bargain considering the company has no debt, grew revenues by 431% last quarter and is expected to grow EPS by 58% in 2014.
Another thriving recent IPO is Potbelly’s (NASDAQ: PBPB). An operator of close to 300 sandwich shops throughout the U.S., Potbelly’s shares have popped 85% since the company went public in early October.
While earnings dipped in the company’s most recent quarter, Potbelly’s did earn over $1.00 per share over the past year. Also, the company has grown revenues at an average of 14% a year over the past five years – as much as seven times the restaurant industry’s average 2-3% annual growth rate during that time.
Better yet, the company is expanding. Potbelly chains are popping up in places like New York and Portland, Oregon. All told, the sandwich shop plans to open 35 new locations this year, and intends to use the proceeds to help fund a dividend.
A third recent IPO that could be a strong long-term play is ExOne (NASDAQ: XONE). ExOne supplies three dimensional (3-D) printing machines and products to industrial customers. A relatively new technology, 3-D printing gives companies the ability to print three-dimensional replicas of real parts taken directly from digital input.
Admittedly, ExOne is a bit of a high-risk, high-reward investment. Like Twitter, the company isn’t profitable. But 3-D printing is one of the hottest niche sectors on the market since there is soaring demand for these products. ExOne shares up 132% since the company went public in early February. And fellow 3-D printer 3D Systems (NYSE: DDD) is up a whopping 479% since the company debuted in May 2011. Perhaps that’s where ExOne is headed in the next year or two.
What I like about Potbelly’s, Insys Therapeutics and ExOne – and what makes them all different from Twitter – is that they sell tangible products. With their products, you can satisfy hunger pains, combat the debilitating effects of cancer or print your own prototypes. They have utility.
Twitter makes 85% of its revenue selling ad space. This market is largely dependent on the consumer’s continued love affair with social media. I’m not convinced the space has much more growth. While Twitter’s revenues have been growing – and are expected to increase by 100% by the end of this year – it remains to be seen when the company will become profitable.
In the meantime, my advice is that you’re better off investing in one of these other recent IPOs. I believe their products will generate more sustainable sales and profits, two things I look for in a good long-term investment.
The One Stock to Own in 2014 — The Year Mobile Takes Over
On Dec. 31, something incredible happened. For the first time in history, the majority of Internet traffic originated from NOT from PCs or desktops — but from mobile devices including smartphones and tablets. We’re never going back. Mobile is taking over. And even though the biggest player in mobile, Apple, is selling over 200 million iPhones this year alone… here at Wyatt Research, we’re recommending the one company no one is taking about. The one reaping massive profits each time a new Apple or Samsung smartphone is activated. In fact, as mobile data usage explodes in the year ahead, its stock is set to soar! Shares are already on the move. So, before this stock moves any higher, read our latest report for all the details: Click here for the full story.