Looking for signs that IPOs are back


When Under Armour Inc. logged the best stock-market debut for an American company since 2000 yesterday, comparisons to the dot-com craze seemed apropos.

Much like the Internet companies that began in somebody's garage, the Baltimore athletic apparel company had its start in somebody's grandmother's basement. And much like the Internet IPOs that saw stocks skyrocket the first day, Under Armour jumped nearly 100 percent on the Nasdaq stock market.

So has "irrational exuberance" made a comeback?

IPO experts say sort of.

Rationality has returned to the market, and a company generally needs a revenue stream and solid prospects to have a successful initial public offering in today's market. But with Under Armour's impressive premiere and with eight other companies, including urban-apparel retailer Citi Trends, posting triple-digit returns as IPOs so far this year, the experts say that perhaps some of the excitement is back.

"This deal is an early harbinger of a return to some remarkable enthusiasm in the stock market," said Mark Walsh, a senior fellow at the University of Maryland's Robert H. Smith School of Business. Walsh is a former chief executive officer of VerticalNet Inc., which went public in 1999 with a first-day pop of more than 150 percent. "Is Under Armour's success the unbridled and perhaps misplaced enthusiasm we saw in the 1990s? I don't think so."

IPOs have received radically different receptions in recent decades. In the 1980s, the average first-day return was 7 percent, which doubled to almost 15 percent during the early 1990s. And during the Internet bubble years of 1999 and 2000, the first-day gains ballooned to an average of 65 percent. This year, the average return has been around 10 percent, with a few standouts.

About 170 companies have gone public this year. The Chinese search engine Baidu.com, which more than quadrupled its first day in August, has slipped but is still up about 160 percent from its IPO price. Adams Respiratory Therapeutics, which markets Mucinex cough medicine, jumped more than 50 percent during its first day this summer and an additional 80 percent since then.

In contrast, more than 480 companies went public in 1999 with names like Pets.com, which lost tens of millions of dollars. Too many investors remember getting burned when the bubble burst and stock markets began to tank in March 2000 - wiping out trillions of dollars in market value - for the IPO market to roar back now, experts said.

"It's conceivable that there will be more IPO activity to come, but we're a long way from the craziness," said Jay R. Ritter, a finance professor at the University of Florida.

Under Armour benefited from local demand for a company with Maryland roots. Founder Kevin A. Plank, who played on the University of Maryland football team, started the company with the goal of developing a T-shirt that would be more comfortable and drier than cotton ones. Also, the apparel sector has been hot with strong investor demand for new issues. And Under Armour has established a brand name.

"It's a good company, but it was definitely an emotionally charged issuance," said David Menlow, president of IPOfinancial.com.


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