Companies hoping to go public may try to ride the high-tech stock market's bull stampede, industry analysts say.
In the previous two days, the technology-laden Nasdaq has climbed more nearly 70 points, with Friday marking the largest one-day, single-point gain. The market gave back some of that momentum today, closing at 1328.29, down 10.95 points.
Nonetheless, analysts say, some unexpectedly strong earnings and progress on the balanced-budget agreement in Washington have created a more favorable environment for companies to launch initial public offerings.
"This gives technology companies an opportunity to take advantage of the 'rational' exuberance. A couple of weeks ago, there was a lot of fear that [planned initial public offerings] would be stymied by a falling market," said Richard Peterson, an IPO analyst with Securities Data.
Other analysts agree. "Earnings have come out, and year-over-year growth patterns look strong," said Mark Specker with Stamford, Connecticut-based Soundview Financial. Compaq (CPQ) is aggressive on pricing, [there are] new Intel chips, and the economy is just really good. That is the recipe for a decent tech market."
Companies waiting to go public include online bookseller Amazon.com, which is expected to launch its IPO in the next week. Five other companies have filed papers to go public in the last two weeks, Peterson said.
But he cautions that success is not guaranteed, even in this feverish climate. "The technology market has improved in the short term, but they are not out of the woods," Peterson said, noting that companies need to quickly come forth before investors lose interest.
And the rush may do more harm than good if companies aren't sufficiently prepared for a public offering. David Menlow, president of the IPO Financial Network, said that tech companies still carry a stigma from last summer, when the IPO door slammed shut on companies that had great concepts but lacked financial foundation.
Last year, after a steady buildup of monthly IPO rollouts from around 5 in January to more than 25 in both April and May, tech IPOs fell to around 10 in August, according to Securities Data figures.
And to date this year, the IPO market has not taken off like last year, according to Securities Data.
Nonetheless, savvy investors may find some good deals among the pack. Unlike the last high-tech rally, when IPOs were often overvalued, companies and underwriters are now more pragmatic in their pricing.
"I think it is a wonderful time for investor to buy into those high-tech IPOs. Companies that are coming out now have a more realistic valuation, so if we are going to embark upon another high-tech rally, those that will come out will come out at cheaper level," Menlow said.
Companies launching IPOs for the first time may fare better than others. Those that have refiled or had postponed an IPO are going to have a harder time nudging back onto the starting line.
"Those are the ones that were caught in the whirlpool of spiraling-down prices and they are looked at with a jaundiced eye," Menlow said. "They couldn't get through before, so are we going to see the same problems again?"