Ipos More Feather Than Chicken

For every Netscape, Home Shopping Network and Boston Chicken - companies whose hyped initial public stock offerings made bundles of money for investors during memorable first days of trading - there’s dozens of IPO duds.

Initial public offerings, a company’s first issuance of stock - also referred to as going public - are often risky and speculative investments that on average never achieve the returns of the overall stock market, experts say.

For example, the share prices of PST Vans, a Utah van company, and Global Star Communications, a Bermuda satellite firm - which both went public last winter - tanked on the first day and have since dropped by about 30 percent.

“Generally, I would say IPOs are not a good bet,” said Manish Shah, editor and publisher of the Manhattan-based IPO Maven newsletter. “You find that many of these hyped stocks actually peak on the first day.”

Between 1970 and 1990, IPOs had average returns of about 5 percent a year, compared to average returns of 12 percent from companies of comparable size that had already been trading, according to a study conducted by University of Iowa finance professor Timothy Loughran.

“My advice would be to avoid an IPO when it becomes a frenzy,” said Loughran. “I think the expectations were a little too high for Netscape. I predict that earnings for this company in two years will be very disappointing.”

Even a powerhouse giant such as Apple Computer had some rough times following its IPO in December 1980. The stock was offered at $22 per share, but closed on its first day of trading at $14.37 per share. Five years later, the stock was trading 28 percent below that first day closing price.

Home Shopping Network, which closed 136.8 percent higher at $42.62 per share in May 1986, turned in the best first day ever for an IPO. Boston Chicken rose 142 percent to $40.50 per share on Nov. 9, 1983.

But in February, General Magic, a communications software company, nearly doubled to $26.62 per share from its $14 offering. But on the second day, it dipped to $11.