Tech issues pop and sizzle, one misfires

By Lilla Zuill

NEW YORK, Oct 12 (Reuters) - A wave of hot, new technology issues has been spicing up otherwise lackluster U.S. initial public offerings, but investor exuberance may have become irrational this week, analysts say.

For the most part, investors lining up for a diverse selection of recent tech offerings -- from software makers to digital television companies -- have been richly rewarded.

Initial investors in software maker VMWare Inc (VMW.N: Quote, Profile, Research) got a 76 percent boost, with the shares closing up at $51 a share on Aug. 14, the first day of trading. The shares have continued to rise, more than doubling from the first day to close at $102.98 on Friday.

Athenahealth Inc (ATHN.O: Quote, Profile, Research), an Internet-based provider of administrative services to physician offices, also fared well. The stock jumped 97 percent in its September debut and has continued to rise.

"Investors are piling in (to technology offerings) and bidding (them) to stratospheric heights," said Scott Sweet, managing director of research firm IPOboutique.com. "This is one of the wildest new issue times, certainly since 2000."

The surge in new-tech issues coincides with strong performances from technology stocks in general in recent weeks. The tech-laced Nasdaq Composite Index (.IXIC: Quote, Profile, Research) has gained about 8.5 percent since the beginning of September. That compares with the Standard & Poor's 500 Index (.SPX: Quote, Profile, Research) and Dow Jones industrial average (.DJI: Quote, Profile, Research) rising about 6.2 percent, over the same period.

In contrast, many new issues from other sectors have performed modestly, or declined in early trading.

Textainer Group Holdings Ltd (TGH.N: Quote, Profile, Research), which leases shipping containers, rose 3 percent in its Wednesday debut. And a few weeks earlier, common units of Encore Energy Partners LP (ENP.N: Quote, Profile, Research), an oil-and-gas exploration company, gained a mere 0.14 percent.

"In this market, they really do well, or are a bit boring," said Francis Gaskins, president of IPOdesktop.com.

Year-to-date, new U.S. technology offerings have raised $7.5 billion, more than double the $2.9 billion generated by this time last year, according to data tracker Dealogic.

And 33 more technology companies have filed to raise $3.5 billion through IPOs.

"There is a scarcity of companies in high-growth markets, that have top-line revenue growth," said Gaskins.

But he and others say investors should not get overly caught up in the tech euphoria.

A case in point was the rapid rise, and fall, of this week's hot tech IPO -- Compellent Technologies Inc (CML.P: Quote, Profile, Research).

The small, network storage company soared 79 percent in its market debut on Wednesday after pricing above the forecast amount in its IPO a day earlier.

But Compellent's first-day close of $24.19 a share was too lofty, said IPOboutique's Sweet.

"This was an astonishing opening. It is a nice company, but it should have had a much, much lower premium," Sweet said.

TOO GOOD TO BE TRUE

By Thursday, Compellent's first-day share price was under pressure and it deflated further on Friday. The shares ended at $18.55 on Friday, about 23 percent below the first-day close.

Gaskins said that, based on its first-day closing price and last quarter of earnings, Compellent -- which has been unprofitable to date -- had a price-to-sales ratio of 15. Based on its Friday share price, the ratio is 12. That rich valuation compares with a ratio of 3.7 at larger competitor Network Appliance Inc (NTAP.O: Quote, Profile, Research).

Sweet said intense competition in the network storage space, including two similar companies that recently filed for IPOs, should have curbed investor interest in Compellent.

"EqualLogic and 3Par are bigger in revenue and more widely desired," said Sweet.

Nashua, New Hampshire based EqualLogic filed on Oct. 1 to raise up to $125 million with an IPO. Fremont, California-based 3Par Inc earlier filed to raise up to $100 million.

OPEN DOOR

"The door is still open," said Gaskins of new tech offerings, but investors must filter out the chaff.

One small tech offering likely to draw interest next week is SoundBite Communications, which provides businesses with on- demand automated voice messaging via the Internet and plans to raise up to $84 million in a listing on Nasdaq.

SoundBite is growing and was profitable in three out of the past four quarters, Gaskins said, in a research note. It is also in a niche market, which boasts high compound growth.

"In this market, it really does come down to fundamentals," Gaskins said. "It is strictly the income statement and if the company is going to grow."