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Boston Capital

Promising beginnings

By Steven Syre
Globe Columnist / September 6, 2011

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You wouldn’t be crazy about boarding an airplane in the middle of a storm, and no company likes the idea of going public while the stock market is going through convulsions.

Volatile, fearful markets are not conducive to successful initial public stock offerings, which by nature depend on an element of faith in a new investment proposition.

But some companies still do it. In fact, a total of 21 have gone public since the stock market hit its recent highs on July 7. They all chose to fly into some serious turbulence.

Two local businesses - Carbonite Inc. of Boston and Dunkin Brands Inc. of Canton - took the leap after that July 7 market top. Both have turned out to be especially good short-term investments in a bumpy market, but for very different reasons.

Carbonite works in one of the hottest specialties of technology: cloud computing. Dunkin Brands is one of the most famous and ubiquitous business names in New England. If you aren’t aware that they sell coffee, please stop reading now.

Both stocks have been very profitable investments for new shareholders, near the top of that small class of IPOs that launched since July 7. For my money, Carbonite has been the best performer of them all, measured broadly from a shareholder’s perspective.

There are two principal ways to evaluate the performance of a new stock. One simply measures the change between the company’s initial offering price and the current value of its shares.

The other calculates the change between the price of the first trade in the open market - when any shareholder, not just favored institutions, had an opportunity to buy - and current values.

Sometimes, hot stocks soar from their IPO value but struggle to match the frothy pricing of shares on the first public trade. Zillow Inc., the online service that estimates the value of homes, has seen its stock boom 75 percent over a July 19 IPO price. But Zillow shares are worth 42 percent less than the price of their first public trade.

Likewise, shares of specialty retailer Teavana Holdings Inc. have boomed 53 percent over their July 27 IPO value but currently sell for 10 percent below the price of their first trade.

Carbonite and Dunkin Brands have performed very well by both measures of new stocks. Institutions fortunate enough to get a piece of the IPOs profited, but so have investors who bought early on the open market.

Shares of Dunkin Brands, which went public on July 26, have since soared by 42 percent, while the Standard & Poor’s 500 index lost 11.5 percent of its value. Dunkin stock is worth 7.6 percent more that the price of its first public trade.

Carbonite shares vaulted 40 percent over the Aug. 10 IPO price, while the S&P 500 advanced 5.1 percent over the same period. Carbonite stock is also up 30 percent over the value of its first trade.

A scorecard summary: Dunkin and Carbonite trail only Zillow and Teavana among the group of 21 offerings based on changes from IPO prices. They rise to the very top of the list when you measure gains from a first public trade.

Dunkin has performed well in a rocky market for at least two reasons. It owns a powerful brand that has made buckets of money and will continue to earn handsomely for years to come.

Dunkin also sells a product ideally suited for a bad economy: basic food most customers will be reluctant to give up. It’s no coincidence that shares of Coca-Cola Inc. and McDonald’s Corp. are trading near 52-week highs.

Carbonite, a hot prospect when investors were more willing to take risks, chose to go public as the market neared a bottom and other companies deferred their IPOs. Carbonite, which has yet to earn a profit, initially hoped to charge $15 to $17 for shares but later cut the range to $10 to $11. The shares finally sold for $10.

Public investors turned out to be much more interested in Carbonite. Another factor: Stocks hit bottom and started to recover just as the company’s shares began to trade.

IPOs launched in turbulent markets are risky business. Investors who bought Carbonite and Dunkin Brands have nothing to complain about so far.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.