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A Toast to OpenIPO From the 'Little Guy'

April 13, 1999|JOSH FRIEDMAN

I won. I think.

Getting 100 shares of Ravenswood Winery in its initial public offering turned out to be surprisingly easy. Watching them test the stock market now, without any traditional analyst support, could turn out to be the hard part.

From this corner, W.R. Hambrecht & Co.'s novel "OpenIPO" format lived up to its name in the first test. The San Francisco-based brokerage touts OpenIPO as an egalitarian "Dutch auction" system that gives the little guy a fair shake. In many IPOs, big investors snap up all the shares, reaping fast gains--at least on paper--as the pipsqueaks get shut out.

But with just $2,000 in my account, I got--or got stuck with--all the Ravenswood shares I asked for, and at a better price than what I bid. The system's truest test, however, might come with the first Internet-related OpenIPO.

The auction process was simpler than I expected. Researching the low-profile company was a chore, but a happy one.

As a wine novice, I started by surfing chat rooms and Web sites for clues about Ravenswood, a tiny, Sonoma, Calif.-based outfit that specializes in slightly expensive zinfandel and other reds.

The message boards for publicly traded competitors such as Mondavi and Beringer were barely alive--apparently, tech heads have little time for wine stocks. One post mentioned that Ravenswood's price-to-earnings ratio--a measurement commonly used by investors to gauge a stock's valuation--would be a reasonable 20-ish if the shares were to sell in the middle of the expected $10.50-to-$13.50 range. A check of the prospectus showed pro forma earnings of 63 cents a share last year, putting the company's P/E in the 16-to-21 range at the expected sale price. So far, so good.

A Yahoo search yielded rave reviews for Ravenswood. At http://www.winespectator.com, for example, its zins and merlots all scored between 86 and 92. On another site, prominent critic Robert Parker gave one vintage a 95, gushing: "Pure decadence--rich, fabulously concentrated, expressive and chewy." Sounded good, except maybe for the chewy part.

Next, I talked to friends who know their vino: Dana Sue, a restaurant critic; Mike, a racing journalist with one of the track's most refined palates; and Kathleen, a caterer. Their comments ranged from "I haven't tried it, but I hear it's pretty good," to "It's excellent, but not quite the best."

At last came the taste test. The merlot was really good with the mushroom ravioli at Le Petit Bistro; the zinfandel really, really good with the shrimp pizza at Puck's Cafe. Who am I to argue with this Parker guy?

Before deciding whether--and how much--to bid, I jotted down the positives and negatives of the potential investment.

In one column:

* Bill Hambrecht, who founded investment bank Hambrecht & Quist in 1968 and helped launch Apple Computer and other Silicon Valley successes, probably doesn't plan to lay an egg with his new venture's first offering.

* The company has a cool name, logo (three ravens) and slogan ("No Wimpy Wines").

* Ninety-one percent of Ravenswood's sales comes from red wines, and even I know red is better than white.

In the negative column:

* Wine stocks have floundered. Golden State Vintners, for instance, trades at about a 35% discount to last year's initial offering price. Shares of better-known rivals Beringer Wine Estates Holdings and Robert Mondavi are down 27% and 12% in the last year, respectively.

* It's not "Ravenswood.com."

* The boutique winery could lose its brand name value by expanding, or its shirt by expanding too quickly.

* The stock could languish if, as expected, it picks up no broker analyst coverage to support it in the aftermarket.

* In an economic slump, customers might balk at paying $20 to $30 for Ravenswood's best bottles.

* The red wine craze could be peaking, and chardonnay could wrongfully regain its most-trendy status at any moment.

* The bidding was extended more than once, perhaps a sign of tepid demand.

* Any manner of natural disaster could ruin the vineyard, as the prospectus calmly notes.

After carefully weighing the few pros and many cons, I went with my gut and decided to bid for 100 shares at $15 each.

Though this was billed as an online auction, using the Internet proved difficult. The application pages came out of the printer in reams of huge type, with all the circles already darkened. Not necessarily Hambrecht's fault, but still.

So I did it all by mail, snaring the whole lot with my high bid. In a Dutch auction, all stock goes for the "clearing price," the lowest bid at which every share can be sold.

Ravenswood, which sold 1 million shares at $10.50, saw its stock gain a paltry 38 cents, or 3.6%, in its debut Friday, but then returned to $10.50 by Monday's close. Meanwhile, tech IPOs like Extreme Networks and ITurf were doubling and tripling.

But OpenIPO is supposed to be for long-term investors, not flippers seeking a quick score.

RVWD strikes me as a keeper. But if it flops, Hambrecht is sure to come along with an Internet-related offering. I, for one, will be bidding.

Investor's Journal is an occasional column looking at stocks and mutual funds from the small investor's point of view. Times staff writer Josh Friedman can be reached at josh.friedman@latimes.com.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Bitter Harvest

Several publicly traded wine stocks have had a rough time of it, losing ground in the last year while the broad market has risen.

*--*

Company Mon. 12-mo. (ticker symbol) close return Beringer $38.69 -27.0% (BERW) Canandaigua 46.63 -18.2 (CBRNB) Golden State 11.00 -35.0* Vintners (VINT) Robert Mondavi 33.88 -11.7 (MOND) S&P 500 1,358.63 +22.3

*--*

*Since July initial public offering

Source: Bloomberg News

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