Chickens walk in their enclosure on a farm in Maryland, in this file photo from October 19, 2005.A shortage of chickens used for breeding is constraining U.S. poultry production and raising prices at a time when beef and pork prices already are at record highs. REUTERS/Joshua Roberts/Files (UNTIED STATES - Tags: ANIMALS FOOD)
Share prices of El Pollo Loco Holdings Inc (Nasdaq: LOCO) increased by over 33% on its first day of trading on Friday, July 25, pointing to another hot stock for retail investors to look into.
At the fast food chicken restaurant's IPO launch on Thursday night, the California-based company with 401 outlets in Arizona, Nevada, Texas, Utah and California, announced its share price rose to $15, which is the high end of the initial range of $13 to $15 per stock.
The stock opened at $19 on Friday morning's opening and reached a high of $20 to sell 7.1 million shares and raise $107.1 million. The company said the money raised during the IPO the would be used to repay debt to the Jefferies Group, Morgan Stanley (NYSE: MS), and Ronert W. Baird & Co.
Pollo Loco logged $7.9 million loss in 2012 and $16.9 million loss in 2013 but enjoyed a 7.2% revenue growth by Q1 of 2014. The company has an estimated market value of $538 million.
However, retail investors are cautioned from purchasing shares of Pollo Loco on the news of IPO opening day strong showing. According to Money Morning, "Big first-day 'pops' for stocks are common among companies that have just completed an initial public offering."
Dr. Joseph Louro, chief executive officer of InvestView, recommended that retail investors go beyond first-day IPO performance in evaluating what stocks to buy. He advocated that investors, especially the new ones, to acquire investment education - which involves looking at a company fundamentals, its stock performance, balance sheet and other available information - to help them make informed decisions when making investment decisions.
InvestView (OTCQB: INVU), a Red Bank, New Jersey-based company, has made it the firm's mission to make available to the public products that would help individual investors find, analyze, track and manage their portfolio.
Combining the knowledge gained from online investment education and analysts advice would be of big help for retail investors in helping validate analysts' views, Louro said.
Investors who would use InvestView resources would receive subscription-based financial education courses delivered through the company's web site.
Investview also has web-based tools designed to simplify stock research and improve the investor's research efficiency. Among such tools is Market Point, made up of Charts, Stock Watch, Market, Calendar and Campus.
Some IPOs, however, did not enjoy first-day strong sales such as what happened to the launches of Dave & Buster, Carl's Jr and Noodles & Co whose IPOs were eventually withdrawn due to lack of investor interest, while other food companies that had IPOs in 2013 suffered drops in shareprices by 62% since it launched in October for Potbelly Corp (Nasdaq: PBPB) and 20% for pizza chain Papa Murphy's Holdings Inc (Nasdaq: FRSH).
Forbes, while acknowledging that Pollo Locco's citrus-marinated chicken is delicious, nevertheless pointed out seven red flags for the chicken fast food chain, namely: Seven straight years of losses; $288.8 million accumulated debt, few new restaurants; 80% of locations in Los Angeles market; failed expansion in 2009; bigger competition from KFC and other chicken giants; too few owners; and 70% of stock after the IPO will still be owned and controlled by current owners.
The finance magazine acknowledged that while Pollo Loco offers tasty chicken, "it's marinating in an unappetizing mix of longoutstanding financial and operational challenges."
Given these facts, some investors may chicken out from buying Pollo Loco stock, while others may be willing to take a risk that their investments could fly out of the window due to poor choices when it comes to stock trading.