Don't look now but these 2016 IPOs are already up by more than 40%
It's little wonder that shares of Blue Prism (LSE: PRSM) are up over 165% since debuting in March as the company has taken to heart the Silicon Valley marketing ethos of promising to upend entire industries with its sexy new "pioneering robotic process automation software."
What does this mean in plain English? Blue Prism designs software that frees white-collar works from some of the drudgery of modern office life by automating repetitive tasks such as data input and number crunching.
Over the top marketing slogans and annoyingly obtuse website product descriptions aside, it does have a large potential market to exploit. Major multinationals are always looking to cut costs and automation software could be the next wave of outsourcing, although the destination this time is the cloud rather than Calcutta.
Major firms have been brought on board to test Blue Prism's software and year-on-year contracted revenue (actual billings and future contract sales) in H1 jumped from £6.6m to £14.8m. The problem is that the business is still not profitable and the firm lost £2.6m in the same period. With £11.1m in cash on hand, this means the company has breathing room for the time being but will need to see cashflow from recurring revenue pick up or slow investment sooner rather than later.
Blue Prism has high potential but larger rivals are also attempting to exploit this growing market and with analysts expecting operations to bleed red ink for at least the next two years, I won't be jumping in feet first just yet.
Professionals' secret weapon?
You may not have heard of the Cannes Lions International Festival of Creativity but evidently plenty of advertising professionals care about this awards show for their sector as the event brought in £52.9m in revenue for parent company Ascential (LSE: ASCL) in H1. Steady growth from business-to-business events like this has helped boost Ascential's share price by 44% since going public in February.
Unsurprisingly for anyone who has had their company pay hundreds or thousands of pounds for tickets to events such as the one in Cannes, this is a highly profitable business. In H1 Ascential's events segment recorded 44.9% EBITDA margins and posted year-on-year revenue growth of 27.4% due to organic growth and new events.
The company is also putting to good use the vast trove of data and creative intelligence out there by selling industry data and forecasting services through products like WGSN for fashion, retail and trend professionals. This segment now accounts for 41% of overall revenue and, while less profitable than the events business, still added £20.1m of EBITDA in the first half of 2016.
With 19.6% operating margins and double-digit top-line growth it's little wonder that shares have increased by more than a third in value since the IPO. However, one wrinkle investors should pay attention to is the pile of debt that Ascential's private equity owners took on before selling shares to the public.
While IPO proceeds and retained earnings had whittled net debt down to £193m by the end of June, this amount of leverage will likely impinge on management's ability to release significant cash to shareholders through dividends or share buybacks. That said, the company is expected to post its maiden profits this year and as net debt falls, organic growth has the potential to be boosted by bolt-on acquisitions.
There are always risks to leaping into IPOs that lack a strong track record, which is why the Motley Fool's top analysts chose a company that has grown sales every year since going public in 1997 as its top growth share.
The market unsurprisingly loves this history of success and share prices are up over 200% in just the past five years. But, with international expansion taking off, the Motley Fool's head of investments sees the potential for sales to triple again in the coming decade.
To discover this stellar growth share for yourself, simply follow this link for your free, no obligation copy of the report.
Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.