The new Sotheby’s? Three reasons to invest in the Poly International Auction IPO (if it happens)
Rumors that the world’s third-largest art auction house is considering an IPO are gaining steam after ArtInfo published a story dubbed “Poly Auction House Plans to Go Public With IPO, Becoming the Sotheby’s of Mainland China” earlier this week. If the rumors pan out, the IPO would likely generate a lot of investor demand.
Unfortunately, the stock will likely be restricted to China’s A-share market, which is closed to most non-institutional foreign investors. Should your broker or wealth manager provide access to the shares, however, there are several compelling reasons to consider investing in Poly Auction. Here are three:
1) Outsize growth. It’s taken Poly Auction just six years to transform itself from a start-up to the third-largest art auction house in the world. The company’s spring sale earlier this year brought in $947.86 million, according to ArtInfo. That was more than twice the sales of Christie’s and Sotheby’s in Hong Kong. All told, Poly netted $60 million last year and holds assets of more than $300 million.
2) Creeping westward. Not content to serve just the Asian art markets, Poly expects to open an office in New York sometime this year (per Forbes). The company’s focus on contemporary Chinese art gives Western art collectors access to a new trove of work including a $62 million scroll landscape by master Wang Meng that’s some 700 years old.
3) Peer pressure. The art auction community is a small, tight-knit clique, and that means investors don’t have a lot of historical precedence to go on. Sotheby’s (NYSE:BID) – the world’s second-largest art auction house – traces its roots back to London in 1744. Nearly 250 years later, the company went public on the NYSE. Since then, the stock’s risen 375 percent (at a compound annual growth rate of 7.09 percent since 1988). Those numbers aren’t off the charts, but Poly International Auction is in a very different part of the growth curve than the 250-year-old Sotheby’s. That could prove tantalizing to investors eager to get a stake in China’s rapidly growing art market.
Top four reasons to invest in Teavana Holdings, Inc. (NYSE:TEA)
It’s hard to believe that a purveyor of luxury teas could be making cash hand over fist in a country where unemployment hovers near 10 percent, but that’s the economic irony we face. Teavana’s growth story is compelling enough to consider investing in the 14-year-old company, though. Here are four reasons investor demand for the shares will likely be high when Teavana IPOs:
1) It’s not just the leaves that are green. Teavana’s net income was $12 million in fiscal year 2010. That came on revenue of $125 million giving the company an after-tax profit margin of 9.4 percent. That’s the same profit margin as coffee darling Starbucks Corporation (NASDAQ:SBUX), according to SeekingAlpha.com. Teavana’s P/E ratio is hovering at 40 (compared to SBUX’s 27). That would be high for a long-established company, but Teavana appears poised for the sort of rapid growth that justifies high P/Es.
2) Room to spare. Teavana expects to add 110 new retail outlets through the end of 2012 nearly doubling the company’s total number of stores (which stands at 161 at the moment). Income from the IPO should help Teavana pay down debt before incurring costs for its new stores. The good news? Teavana claims it takes just a year and a half for a new store to start turning a profit. That means those 110 outlets should be in the green by 2014. By 2015, Teavana expects to have more than 500 stores in operation.
3) Harnessing the Web. Teavana’s online sales have grown meteorically at a compound annual growth rate of 56 percent since 2007, according to the company’s S-1 filing. “We believe we have the opportunity to grow e-commerce sales to at least 10 percent of sales in the future,” Teavana writes. That’s up from 7 percent of sales the company currently enjoys. Lower overhead on online tea sales could ratchet up earnings.
4) Changing tastes. Whether true or not, there’s the perception that tea’s better for the body than coffee. Teavana’s capitalizing on that perception, and – in an increasingly health-conscious society – that could bring the U.S. closer to parity with foreign countries, which tend to consume far more tea. In fact, the U.S. ranks No. 22 in tea consumption in the world, according to TheStreet.com. More tea for Americans means more profits for Teavana. In 2009, Americans consumed 157 cups of tea per capita. That might sound like a lot, but it’s far less than the total tea consumption in Asia. Indeed, per capita tea consumption stood at 737 in Asia in 2009. If Teavana can get more Americans shunning coffee for tea, their stock will likely make a lot of investors happy.
How to invest in internet stock IPOs
One of the easiest ways to identify hot stock sectors is by following the release of new ETFs and ETNs. Last week, the Internet stock IPO market got its first two ETNs. The ETRACS Internet IPO ETN (NYSE:EIPO) tracks a UBS index of 20 tech-related stocks that have debuted on the NASDAQ or NYSE within the past three years. That includes headliners like professional social networking company Linkedin Corporation (NYSE:LNKD) and Russian search giant Yandex (NASDAQ:YNDX).
A sister ETN – the Monthly 2X Leveraged ETRACS Internet IPO ETN (NYSE:EIPL) – ratchets up the stakes even more by seeking to return twice the performance of UBS’ new tech index.
The funds give investors exposure to new tech stocks without forcing them to put all their eggs in a single company. That could prove appealing as many of the hottest tech IPOs have come from companies based outside of the U.S. Unstable political environments and intense competition in China and Russia, for instance, makes sinking cash into a single company risky.
Here’s a look at the Top 10 stocks in the UBS Internet IPO Index. The index, which the new tech IPO ETNs will attempt to track, reads like a who’s who of the hottest tech IPOs over the past three years: