Category: IPO

Earning quality of Chinese IPOs

Post author By stlplace
Post date January 31, 2008
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What is earning quality?
As a new investor, I used to look at earning of a company heavily. I think earning is also the driver of a stock price in the wall street. If a company issues earning report which beats the street, and offers upbeat outlook for next quarter (or next year), the street will bid up the stock, vice versa. But there is two problems when we solely focus on earnings. For one, growth company, especially IPOs like Google and Salesforce in 2004, and Baidu in 2005 may not be profitable. Or if they are profitable, they don’t make too much monney thus its PE ratio is usually high.

Tags Chinese-IPOs, Nasdaq, NYSE

Investing IPO

Forgot to buy VMW puts

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I thought about it early Jan. after reading from San Jose Mercury News that VMW is the No. 4 software company, in terms of market capital (about $30 b as of yesterday). But I put down the earning date (Jan 28) on my Google Calendar (not Yahoo), and it did not send out reminder email as Yahoo does. So I missed buying the puts before earning. Interestingly, here is today’s price change of the puts options for VMW (expires Feb):

$60: $0.85 => $7.30 (up $6.45, or 759%)
$65: $1.40 => $11.00 (up $9.60, or 686%)
$70: $2.65 => $15.80 (up $13.15, or 496%)
$75: $4.30 => $20.60 (up $16.30, or 379%)

Tags AAPL, AMZN, RIMM, VMW

China IPO

E-House China secondary offering

Post author By stlplace
Post date January 17, 2008
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Quoting Reuter News: E-House China (EJ), filed with U.S. regulators on Thursday for an offering of $175 million of its American depositary shares. Note the company recently formed alliance with some major home builders in China (read the news from CNNMoney).

Now they are asking more money from the market, the shareholders (old or new). From my observation the China housing market is at a psychological tipping point, i.e., it is facing a correction to say the least. But in long term, I do believe there are rooms to grow.

I am not planning to buy the EJ. But for reference (Yahoo Finance), it closing price today $21.71 represents PE (ttm) of 44, and Price/sales (ttm) of 16.7.

Tags E-House-China, EJ

China IPO

Lessons from Longtop

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Well, Longtop did not turn out to be long top, it was a short top if you will. I sold most of the shares today (still 50 shares pending in Scottrade).

The problem with Longtop (LFT) is not fundamental, it’s rather valuation. In current market, I think an unproven Chinese financial software (IT service) company like Longtop can not sustain its bubble price at IPO.

Some lessons:

1) Be careful of IPO (maybe I got MR at pure luck, but I did not get it in the first day). Also be careful of all underwriters: from JP Morgan (NINE), WR Hambrecht (XFML, GSIT), and Goldman Sachs (LFT)…NINE and XFML are in my Hall of Shame list, will LFT join them too?

2) Again valuation. A good company does mean good stock. Look at Baidu during 2004 IPO to 2006.

3) Don’t averege down if I haven’t made any money from a stock, e.g., SBUX, LFT,…I think CROX is different because I made money on this one, and has some knowledge on it. In other words, if average down too many times, something must be wrong here.

Tags baidu, longtop, Mindray

IPO Stocks

Year end investments summary

Post author By stlplace
Post date January 2, 2008
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My performance
The Scottrade account did beat the S&P 500 and Nasdaq (detail to be calculated…). This is pretty easy because the market did not go up much in the past year (3.5% for S&P and 9.8% for Nasdaq).

More importantly, learned the risk, portfolio management (weighting), IRA/401K/mutual funds, all from hands on experience and can not be measured by the numbers.

What went right
1) Sell the losers: XFML, SBUX
2) Ring the register on winners: HMIN
3) More focus, 3 or 4 stocks maximum in the portfolio; work on same stocks (MR) if it’s working
4) Basic research: reading F1/S1 prospectus, 10K, 10Q; using google spread sheet
5) Read the five stocks/investing books (listed in my aStore), learned a lot from the masters. I still need to complete Buffett’s book (a little harder) and Ken Fisher’s book (a little long).

What went wrong/lesson learned
1) Did not sell CROX before Oct 31 ER: if a stock went up a lot and its weight on overall portfolio increased dramatically, make sure ka ching some…
2) Speculate on small companies (GSIT) without much research

IPO Stocks

I sold MXB six hours too early

Post author By stlplace
Post date December 22, 2007
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Stocks in review week of Dec 16 to Dec 22

1) I bought some MXB shares on Dec 19. After I read its prospectus more carefully, I found two things I don’t like: it will use the proceeds of the IPO ($225 m) and borrow some $425 m to pay the dividend to its parent, Morgan Stanley; Morgan Stanley still controls more than 90% of its share. So I put up a limited sell order at 29.30 for Dec 21.

On Dec 21 the stock opened at $29.50 and had a huge run from 3:00 PM EST till close. It closed at $33.72. This reminded me 3 years ago I sold my 51job (JOBS) two days too early.

Tags AMR, GM, GSIT, HMIN, ISLN, MXB, PFE

China IPO

Two more questions for Longtop

Post author By stlplace
Post date December 20, 2007
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longtop logo

1) Why it quit the outsourcing biz?
We know outsourcing is a typically low margin business. Interested readers can look at the VanceInfo (formerly WorkSoft), the first Chinese IT outsourcing company listed in Nasdaq. It did IPO recently.

Longtop should not get into the oursourcing business to begin with. I suspect the VCs suggested the company to quit the outsourcing business, and the company did so early this year. This move will improve the profit margin and it will look good on the finanial statement. More importantly, it will save the company resources and focus on its main business: the software and service for China financial industry.

As a side note, by quiting outsourcing Longtop may have avoided the effect of “slowdown” of US financial sector (depends on the type of customers they serve). From I heard from Cisco conference call a while back, the US financial indutry is cutting back on IT spending now.

2) Effect of tightening monetary policy
For example, the raise of bank reserve rate by People’s bank of China. The move was to make sure economy not overheat, and banks should be prudent on its lendings. This will not have effect on banks’ IT spending. Because the bank IT budget is separately from its bank reserve. As I said in my previous post, banks are increasingly rely on sophiscated IT systems for customer relations, marketing and sales, internal management, etc.

Tags china-banking-IT, LFT, longtop, YTEC, yucheng-tech

Fun IPO

NetSuite IPO update

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It priced at $26, according to AP news.

I did NOT bid on NetSuite IPO eventually. Two things: it raised price range from initial 13-16 to 16-19; and I noticed NetSuite is not profitable so far. On the other hand, when its bigger rival, the on-demand software provider SalesForce (CRM) did IPO in 2004, it was about to turn profitable.

Don’t know the exact reason why the recent weak Mr. market valued it so high. I remember more than 3 years ago CRM was priced in mid teens range during IPO. I suspect the recent strong show of VMWare is one reason. Like the Baidu situation in 2005, it did IPO one year after the successful IPO of Google, people (who missed GOOG) bid up BIDU from the IPO price of $27, to openning price of $70. The night before IPO I was planning to buy it at $35, and get out at $42. My plan did not get executed because I was way too conservative 🙂

Tags BIDU, CRM, GOOG, N, NetSuite-IPO, VMW

IPO

Got some MXB MSCI Inc. shares

Post author By stlplace
Post date December 19, 2007
1 Comment on Got some MXB MSCI Inc. shares

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I bought some MSCI (company, stock:MXB) today. A month ago I heard about it from my friend StrengthTrader’s blog. But at that time I was a bit obsessed with my LFT and CROX, and did not have stomach for another IPO. In last few weeks when I was doing research for my new 401K plan and IRA, I found MSCI index is frequently mentioned as the bench mark for many funds. It’s not the first time I heard about MSCI, but it re-inforced my belief that index fund will be more and more important for retirement investing. This is especially true in current weak market.

Also, from my limited research on the mutual funds for my 401k and IRA, most funds can not beat the index. So it does make sense for people to simply investing in the index fund (or ETF?).

Back to MSCI, it was a division inside Morgan Stanley, and recently got spin off, and IPOed on Nov. 18. Here is its prospectus. The stock is not cheap, at $29, its PE is about 34, twice the earning growth rate (17%). Also, keep in mind Morgan Stanely still has more than 80% stake on this baby.

By the way, for more information on mutual fund investing, you may want to check out my friend Sun’sFinancialDiary. I know he has a lot more experience on this topic than me.

(update Dec 20) Found this bearish article on MSCI at ZachStocks.

Tags MSCI-index, MXB