Stock market watchers haven't seen anything like this since the price of Genentech, a gene-splicing firm, soared to $80 a share from its initial public offering price of $35 back in October, 1980.
For the second day in a row, a little-known merchandising company called Home Shopping Network has taken Wall Street by storm.
An initial public offering of 2 million shares in the Clearwater, Fla., company was made Tuesday at $18 a share on the American Stock Exchange. By day's end, more than 2.4 million shares had exchanged hands, and the stock had closed at $42.62 1/2.
The flurry abated somewhat Wednesday, but the issue was still second most active, closing up $5.12 1/2 at $47.75 on a volume of more than 700,000 shares.
Home Shopping uses the novel approach of selling jewelry, appliances, consumer electronics and other goods at discounted prices on a cable-TV call-in show. The network, which one viewer described as having a game-show atmosphere, operates 24 hours a day, seven days a week from a Tampa, Fla., studio. As many as 600 operators answer 400 WATS lines.
According to the April 1 prospectus for the offering, Home Shopping's net income soared in the fiscal six months ended Feb. 28 to $6.8 million from $125,000 in the same period the year before. Sales rose to $63.9 million from $8.3 million.
The two-day boom has made investors cheerful, but Merrill Lynch Capital Markets, the underwriter that set the offering price, has endured some ribbing for what appeared to be a gross underestimate.
"But what a nice surprise," said Kaye Ramsden, a Merrill Lynch spokeswoman. "Everyone knew it was a good company, but the enthusiastic response of the market is exciting."
Investment bankers generally try to lure buyers by pricing a new issue somewhat under the estimated market value. But this kind of disparity is rare, according to Glen King Parker of New Issues, a Fort Lauderdale, Fla., newsletter.
He noted that Home Shopping might be displeased. "Obviously, they could have sold twice as much stock (at the $18 price) or, conversely, at $28 or $35, the demand would have been there," Parker said.
On the other hand, the two executives behind the concept, which was kicked off nationally in July, 1985, have some salve for their wounds. Since President Lowell Paxson and Chief Executive Roy Speer retain more than 11 million shares, according to Parker, they now have a paper profit of more than half a billion dollars.