Initial public offerings (IPOs) that fail to pop within the first few weeks of trading aren’t doomed to the graveyard.
Like late bloomers in high school, just because they didn’t grow in a short window doesn’t mean they never will. Picking up the pieces of these forgotten and unloved IPOs can be very profitable for investors.
Look at Facebook Inc (Nasdaq: FB) if you want an example. The stock had a horrendous IPO and saw its stock price drop almost 50%. It was tarred, feathered and resigned to the junk pile. But just when everyone had written it off, the stock price started to turn around.
Today, Facebook stock sits almost 100% higher than it’s initial public open price.
Don’t go thinking the world’s largest social network is unique in this regard. Many stocks fail to excite in their initial offering, but later turn into real portfolio heroes – kind of like that scrawny kid in high school making good.
Sometimes it has nothing to do with performance. Even hot IPO stocks get easily forgotten by investors after the excitement dies down.
That’s good when we’re trying to scoop up cheap growth stocks.
It’s easy for markets to overlook newbie stocks when we have a plethora of new IPOs. And 2014 has been a standout already. This year we’re on a pace to break the 1999 record of 457 IPOs.
That means a lot of great new stocks are being overlooked by Wall Street. It’s exactly why I’m keeping an eye on Care.com Inc (Nasdaq: CRCM) right now.

Why I’m Keeping an Eye On Care.Com

Care.com IPO’d at an opening price of $17.00 in January of this year. The stock climbed to a high of $29.25 before crashing back to its current price levels of roughly $10.00 a share. Ouch. Take a look at the chart.

You can see this stock has been severely unloved by the markets this year.
Care.com is the world’s largest online marketplace for finding and managing caregivers. They have one of the largest online databases of local, national and global caregivers and 9.7 million members in 16 countries.
While primarily focused on the senior living and senior caregiving market, the website helps find nannies, tutors, babysitters and even pet care.
The senior living industry is massive and growing exponentially. As baby boomers age, they’ll transition to senior living facilities like independent living, assisted living and skilled nursing centers. In addition to licensed facilities and group homes, a large amount of Americans will choose to receive care in their own homes.
In many circumstances, families are out of town and do much of their research online before selecting a facility. Seniors and their family members are actively using services like Care.com’s to search for and select care. It makes Care.com a top advertising target for the senior care industry.
Care.com isn’t just focused on offering consumer information and being a marketing platform for caregivers. The website also connects caregivers and those seeking employment opportunities by providing online career and job listings.
In addition, Care.com has a payment product that allows families to pay their caregivers electronically, and it provides tax services to independent caretakers. These bring in more consistent and ongoing revenue streams.
The company is turning its platform and expertise into something more than a one-and-done database with heavy advertising. Care.com is combating the difficulties with online churn and customer acquisition costs you see in similar online business models.
Which is good because the company has some work to do to get earnings positive.
It’s worth noting that almost 75% of all IPO companies are unprofitable at their initial offering. And like many, Care.com is still climbing its way towards profitability.
But there are bright spots that hint at things to come. Like the fact that Care.com grew its first quarter revenues 39% year-over-year. Last quarter, the company reported earnings that beat estimates with a $0.51 loss instead of the $0.54 loss analysts were expecting.
Unfortunately, even with this double-digit revenue growth, the company still expects to end the year in the red. But that doesn’t really matter.
One of the biggest anchors to Care.com’s stock hasn’t been the earnings, but rather the insiders. You see, the stock’s lockup period expired just Thursday. Lock-up periods force company insiders who weren’t part of the IPO to hold their shares before selling them on the open markets.
It can create strong negative pressure on IPO stocks. We saw it in Facebook. With each lockup expiration – they had three staggered lockups – shares were depressed. It was only after all the insider sellers were flushed out did the shares start climbing.
At the end of the week, Care.com will release its second quarter earnings. If the company beats analyst estimates again, it’ll be a confirmation that it is quickly looking to get profitable and deliver those earnings to investors.
If that’s the case and Care.com does get its earnings in the black, this stock could easily double or even triple. For Care.com and many IPOs, patience can prove to be a profitable virtue.
Whether you’re looking for IPOs or blue chip stalwarts, Ian Wyatt has an approach to investing to maximize rewards while minimizing risks. Find out about his latest market-beating endeavors later this week by joining his Priority Access List now.

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