Annie’s Inc, the organic food seller, recently just came out with their IPO on Wednesday and so far it’s a hit. In fact, as we speak the IPO is up 70% in the early morning trading. Shares were offered at $19 a share but they have since rapidly on up to where it sits at $32.73 as of this writing. The company has sold 5 million shares in the $95 million IPO and they have said that their net proceeds are $11.6 million. Today’s price action has valued Annie’s at $532 million.
The organic food company has been profitable since 2010. The company reported $20 million in profits on $117.6 million in sales in 2011. This is up from $96 million and $6 million in profits in 2010.
The stock has been oversubscribed meaning that institutions and retail investors were trying to get a hold of Annie’s shares before it starts to trade but they could not. This gave underwriters Credit Suisse and JP Morgan the opportunity to push up the initial price for the IPO.
It seems as if the IPO rally still lingers around Wall Street. Last year we saw quite a few IPOs that gave companies huge valuations even though they had no earnings. Annie’s is profitable which is good but is it worth $532 million?
I do not believe it is worth that much. The company has only been profitable for two years now and their earnings from those two years do not justify the high flying valuation. This IPO is just another example of Wall Street pushing up valuations on companies that do not deserve them. I mean profit wise, they have only made $26 million since 2010, how does that warrant $532 million valuation?
Annie’s seems to be a good, well run company from what I have read but I simply can not get behind a stock that has a valuation that is way more than what it is actually worth. However, if the stock does come back down and it will, I would consider being a buyer. The market for organic foods is huge and these days a lot of people try to buy only organic. Annie’s has a lot of growth potential which is an attractive quality for the stock.
The bottom line is that you should not buy IPOs unless you are a pro or institutional investor. Retail investors who are trying to strike it rich with an IPO will be more likely to lose it all so do yourself a favor and wait for the price to come down, then you can get into the stock.