Write down this ticker symbol: NARI…
And in the coming days and weeks, track it.
Because it’s the first of what I believe will be a long string of highly successful initial public offerings (IPOs).
You see, due to Covid-19, the number of IPOs this year is off by 60%. But that doesn’t mean the profit opportunities have disappeared.
If anything, the slowdown has increased the odds of profiting — as so many investors have stopped paying attention to this corner of the market.
And now, to prove this point, let me give you a closer look at NARI…
The Anatomy of a Hot IPO
Last week, I shared an ominous chart. It revealed the percentage of IPO companies that are unprofitable.
In short, the percentage is at an all-time high — which means most IPOs are time-bombs waiting to explode.
Why? Because share price ultimately follows earnings… so when there are no earnings, or no near-term prospects for them, stock prices fall.
But Inari Medical (NARI) isn’t like most IPOs…
Inari is a commercial-stage medical-device company. It focuses on treating patients suffering from venous diseases like deep vein thrombosis.
The company’s fundamentals stack up favorably against the five hallmarks of a hot IPO that I shared last week…
Passing Our Five Hallmarks with Flying Colors
- Revenue: Inari has brought in $51 million in sales. This is a key threshold. Research from Professor Jay Ritter at the University of Florida has demonstrated that companies with more than $50 million in sales prior to their IPO perform best, rising an average of 38.8% over three years. That compares to only a 5% rise for companies with less than $50 million in sales.
- Verifiable Growth Opportunity: An IPO is an investment in the future growth of a company. Inari boasts ample growth opportunities, having penetrated less than 1% so far of a market worth $10 billion. In other words, its growth hasn’t peaked… it’s just getting started.
- Insider Ownership: We should insist on a minimum of 30% insider ownership. Inari boasts more than double that figure, as corporate officers and directors are retaining a 67% stake in the company post-IPO. Clearly, they’re betting on far more growth to come.
- Offering Size: $100 million is the key threshold here, as it weeds out the riskiest deals and ensures ample liquidity in the aftermarket. After raising its IPO price twice — a clear sign of excess demand — the company priced 8.2 million shares at $19 each, for a total IPO haul of $155 million.
- Profitability: As share price ultimately follows earnings, this is the most important criteria. And in the quarter ending March 31, 2020, Inari turned the corner on profitability: it reported a profit of $4 million on $26 million in sales. As its sales and profits continue to increase, its share price is bound to follow suit. And that’s exactly what’s happening already…
A 123% Gain in a Single Day
Inari’s IPO started trading last Friday at $19 a share, and closed at $42.51. That’s a gain of 123.7%.
Such a strong reception on Wall Street will encourage the 60+ companies waiting to IPO to go public sooner.
Market conditions are more favorable now than they’ve been in six months.
Most of these IPOs won’t be worth a penny of our hard-earned dollars because they’ll fail to meet our investment criteria.
But there are bound to be a handful of worthy opportunities.
So stay tuned — as I plan to share them with you here as soon as they appear.
Ahead of the tape,