By: Steve Smith
One of the most basic pieces of investing advice is to get in early on a company, when the growth rate is the greatest. Unfortunately, most average investors don’t have the same access to private companies like Venture Capital companies do.
That means waiting for an Initial Public Offering (IPO), which could deliver big quick profits not just on the first day, but in the weeks and months to come, as mutual, index and hedge funds and individuals add the name to their portfolios.
But also unfortunately, nowadays many of the best, most promising and fastest-growing companies are staying private longer thanks to above mentioned record amount of VC money being pumped into later and larger funding rounds. Also, booming secondary markets have allowed founders and early employees to cash out prior to an IPO.
The upshot is that unlike the 1980’s and 1990s when investors were able to capture the bulk of the early gains in names like Dell, Microsoft, Amazon which came public 1997 with a market valuation of a mere $438 million, today the early gains of names like Uber or AirBnB, which remain private at $50+ billion, or Spotify (SPOT) which came public at a $30 billion valuation have accrued to those early private investors.
But this doesn’t mean there still aren’t some great opportunities, especially in technology that recently came to market and have the potential to post big gains in the weeks and months to come.
For example I highlighted iQiYi (IQ), the ‘Chinese Netflix’ which came public in March and has now added another 20% since I recommended it last week.
Here is a list of 15 other recent tech IPO’s with market capitalization below $5 billion and have double digit revenue growth whose shares should outperform.
One name I particularly like is Pivotal Software (PVTL) a $4.6B provider of customer relationship solutions for businesses. It has added 319 subscription customers over the last four years with 73% revenue growth and is forecasting 22-25% annual revenue growth the next three years and profitability to be achieved in three years.
The Pivotal Cloud Foundry is a single platform built to run an entire enterprise scaling to support thousands of developers and applications. It has go-to-market relationships with Dell Technologies, which owns 70%, and VMware and also works with Google and Microsoft to bring customer workloads to the cloud infrastructure.
The stock has only gained 16% since its April IPO and at this multiple it still looks attractive. I think PVTL can be worth $8B-$10B within the next year or two or more than double the current value.
Dig into some of the other names and I’m sure you’ll find some other promising investments still in their early stages. Remember, the early bird gets the worm.