{"id":36982,"date":"2013-03-21T01:38:26","date_gmt":"2013-03-21T05:38:26","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=36982"},"modified":"2013-03-21T01:38:26","modified_gmt":"2013-03-21T05:38:26","slug":"is-this-ipo-hopeful-the-markets-next-big-gainer","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/03\/21\/is-this-ipo-hopeful-the-markets-next-big-gainer\/","title":{"rendered":"Is This IPO Hopeful the Market\u2019s Next Big Gainer?"},"content":{"rendered":"

By WallStreetDaily.com<\/u><\/a> <\/p>\n

One month ago, almost to the day, I shared this little Wall Street fact of life: The pace of initial public offerings (IPOs) always follows the broader market.<\/p>\n

So it should come as no surprise that, as the S&P 500 Index has already charged 9% higher this year, IPO activity is heating up, too.<\/p>\n

This week alone, nine<\/em> companies plan to go public.<\/p>\n

Who cares? Well, you should. Because one of those companies happens to be Marin Software<\/strong> (MRIN).<\/p>\n

In February, I singled out Marin as a possible “hot IPO,” thanks to its leverage to the mobile advertising boom. (Remember, mobile advertising spending is expected to surge from $3.2 billion last year to $20 billion by 2015.)<\/p>\n

However, there was one big caveat: price.<\/p>\n

Since overpaying for an IPO never makes investment sense – and Marin hadn’t provided a proposed pricing range yet – we couldn’t determine whether or not it represented a bargain.<\/p>\n

But we can now. So let’s get to it before the company begins trading tomorrow.<\/p>\n

Survey Says…<\/strong><\/b><\/p>\n

Later tonight, underwriters plan to price Marin’s IPO between $11 and $13 per share.<\/p>\n

Is that a fair price range?<\/p>\n

Normally, we could tell in a flash.<\/p>\n

We’d simply pull up everyone’s favorite valuation metric – the trusty price-to-earnings ratio – for each of the company’s competitors and the broad market. Then we’d compare it to the IPO in question, based on its earnings per share.<\/p>\n

In Marin’s case, however, it’s not that easy.<\/p>\n

As I previously noted<\/a>, much like every other small-cap, mobile advertising company – including Augme Technologies<\/strong> (AUGT<\/a>), Millennial Media, Inc.<\/strong> (MM<\/a>) and Velti Plc<\/strong> (VELT<\/a>) – Marin isn’t profitable yet.<\/p>\n

Given the infancy of the mobile advertising industry, though, we shouldn’t immediately shun these companies because of their lack of profitability as potential investments. I assure you, the growth and, in turn, profits are forthcoming.<\/p>\n

Thankfully, we do have two alternative and meaningful valuation proxies that we can use to determine a fair price to pay for Marin.<\/p>\n

More specifically, we can evaluate previous investments by venture capital firms and price-to-sales (P\/S) ratios for similar companies.<\/p>\n

~Valuation Proxy #1: Venture Capital Investments<\/b><\/p>\n

In November 2012, Marin raised almost $20 million through a private placement with existing stockholders. Its official purchase price? $13.5312 per share.<\/p>\n

And since Marin has increased its sales since November, it’s not a stretch to assume that the stock is more valuable as a result.<\/p>\n

So, based on previous investments, the proposed range of $11 to $13 per share represents a modest bargain.<\/p>\n

Granted, the venture capital firms’ average cost per share is actually lower than $13.53. That’s because they had invested in previous financing rounds (dating as far back as 2010) at lower prices (as low as $5.53 per share).<\/p>\n

Nevertheless, if we get a chance to buy in at prices equal to their most recent investment, we should take it.<\/p>\n

~Valuation Proxy #2: Price-to-Sales Ratios<\/b><\/p>\n

The going P\/S ratio for a mobile advertising firm is between 2 and 3. But that’s based on an extremely small sample size.<\/p>\n

In a broader context, Marin is really a software-as-a-service (SaaS) company. And if we include those companies in our analysis – including salesforce.com<\/strong> (CRM<\/a>), Guidewire<\/strong> (GWRE<\/a>) and Workday<\/strong> (WDAY<\/a>) – the range of P\/S ratios checks in at 8 on the low end and 36 on the high end.<\/p>\n

Now, I’m always a bit conservative when it comes to valuing an IPO.<\/p>\n

Accordingly, let’s use a P\/S ratio range of 8 to 10 for Marin. Doing so values shares at about $15.80 to $19.75. So, again, the proposed pricing range of $11 to $13 appears to be a bargain.<\/p>\n

Granted, underwriters might be underpricing the deal to produce a one-day pop. They’ve been known to stack the deck, so to speak, to make their track record appear more impressive.<\/p>\n

But that’s precisely why we’re completing our valuation analysis in advance of the stock’s debut. It’s the only way to remain rational with our purchasing decisions.<\/p>\n

You see, if the IPO does, indeed, pop out of the gates, we know at what point the price becomes prohibitive.<\/p>\n

As for most other investors, who usually don’t hear about an IPO until it begins trading – well, they’re left to their own devices (i.e. – human nature).<\/p>\n

When they see a dramatic price run-up for an IPO, they often buy in, thinking it’s a momentum play that should be purchased at any price. And more often than not, such an investment “strategy” yields losses, not profits.<\/p>\n

Bottom line: Based on previous venture capital investments, the explosive growth on the horizon for mobile advertising firms and prevailing price-to-sales ratios, Marin is a compelling investment for under $20 per share.<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese<\/p>\n

Article By WallStreetDaily.com<\/u><\/a><\/p>\n

Original Article: Is This IPO Hopeful the Market\u2019s Next Big Gainer?<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com One month ago, almost to the day, I shared this little Wall Street fact of life: The pace of initial public offerings (IPOs) always follows the broader market. So it should come as no surprise that, as the S&P 500 Index has already charged 9% higher this year, IPO activity is heating up, … <\/p>\n

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