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Will Twitter Join the 100% Gainers Club?


Twitter gained around 80% in its IPO launch.


The IPO market, once left for dead, is now back! As of last month, we've seen the most IPO activity since 2007 when 33 companies went public. Year-to-date, the number of IPOs stands at 190, well ahead of this time last year. Let's focus on the 100% IPO gainers or as we call them the "100% Club."

Recent IPOs, including the Container Store Group (NYSE:TCS), have jumped over 100%, as well as Noodles & Company (NASDAQ:NDLS), which also traded over 100% higher the day of its IPO debut in July. Potbelly (NASDAQ:PBPB) was yet another recent IPO 100%+ gainer.

Twitter (NYSE:TWTR) gained around 80% in its IPO today. Will the froth stick or wear off?

Recent Specialty Retail IPO Valuations

Of course the justification of such one day pops is that the companies' earnings will grow into these lofty valuations.

But with Noodles & Co.'s current EBITDA of just over $30.1MM on a share price that places the company's value at $1.3B (36x EBITDA), the company will need to grow earnings astronomically just to maintain current price levels. (To put this in perspective, Noodles & Co's EBITDA hasn't really grown much since 2010 when its EBITDA was $26.5MM). Needless to say there is a lot of room for downside surprise if these growth expectations are not met.

The Container Store is in a little better shape. With $87.6MM EBITDA TCS's multiple sits near a more manageable 20x EBITDA, but the company also holds a sizeable debt load and has seen its same store sales growth slow significantly as of late.

However, as we discussed on Valentine's Day in our article, "What do Earnings and Icarus Have in Common?" the market has completely forgotten about earnings during the momentum meltup of the past few years anyways, so it is no surprise that these IPO investors are also throwing earnings to the wind as well.

As more and more IPOs come to market at valuations significantly higher than their market peers, one can't help but also wonder if this is just another sign the stock market has gotten too hot for its own good.

Specialty Grocers Also Popped 100%

But, it doesn't end there as the grocery sector also remains on fire as it too has not been spared the IPO hype either.

When Sprouts Farmers Market (NASDAQ:SFM) went public in August, the organic and health food concept was able to attract enough money to shoot its stock up 100% by the opening of trading, closing 121% higher to $39.86.

Sprouts' story is like so many other IPOs, it all depends on the future growth of its stores, and its valuations show it with a P/E currently in the triple digits.

Other Specialty Grocers include Whole Foods (NASDAQ:WFC), The Fresh Market (NASDAQGS:TFM), and Natural Grocers (NYSE:NGVC). While Whole Foods has been public for over 20 years, Fresh Market and Natural Grocers also had more recent IPOs.

On 11/5/2010 Fresh Market got a hefty first day pop of 46% above its IPO price. Two years later its stock is now up over 130% from its IPO price of $22 while it still sports a P/E of 36x earnings, and its Cash Flow has actually been declining the last two years.

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