After a two-month rally in U.S. stock markets, IPO investors appear eager to buy into China's fast-paced growth and expanding middle class, and make selective bets on U.S. consumers' slowly rekindled desire to shop and dine out.
This week, tutoring service TAL Education Group is up 65 percent since its IPO, which raised $120 million. Handbag maker Vera Bradley Inc. also gained 68 percent this week after its $176 million IPO, while restaurant chain Bravo Brio Restaurant Group Inc. rose 21 percent. And prepaid debit card provider NetSpend Holdings Inc. raised $203.5 million and has risen 23 percent despite regulatory difficulties at its primary issuing bank.
Volatile markets and economic uncertainty tend to squelch demand for initial public offerings. After a steep spring decline and a turbulent summer, the Dow Jones industrial average has risen more than 3 percent so far in October after its best September since 1939.
The gain in U.S. markets has most benefited investors who bought into Chinese companies listing in the U.S. Chinese companies have chalked up some of the biggest returns of the past 12 months this autumn. But consumer companies serving Americans have also tiptoed back to the IPO market.
While the U.S. economy is growing only modestly, investors are salivating at the prospect of big returns in China, the world's No. 2 economy.
"You can't ignore the demographics and economics of what's happening in China," said David Menlow, an analyst with IPOfinancial. The World Bank expects the Chinese economy to grow 8.5 percent in 2011, while the U.S. economy expands at a much more modest 2.9 percent.
So investors may be more selective with U.S. consumer IPOs, which have not been common since the U.S. downturn began. Buyers have not suddenly decided Americans are once again ready to spend big at the mall, analysts said.
Vera Bradley and Bravo Brio are impressive because they have grown while unemployment remains high, said Francis Gaskins of research firm IPOdesktop. Neither are discounters: Vera Bradley's signature quilted handbag costs $52, while the average check per person at Bravo's two chains are $19.28 and $25.14, respectively.
"We've been able to grow in difficult times," said Vera Bradley CEO Michael Ray on Thursday. Now he's noticing new costumers are picking up the company's quilted bags, he said. "Signs are encouraging that the consumer is coming back."
A few other U.S. apparel retailers have gone public recently _ Express Inc. in June, Body Central Corp. earlier this month. A U.S. restaurant chain hasn't gone public since Einstein Noah Restaurant Group Inc. in June 2007, according to IPO research firm Renaissance Capital.
The success of Vera Bradley and Bravo Brio may prompt other consumer companies to go public, but there's nothing coming up in the next couple weeks. Toys 'R Us filed plans for an IPO in late May, but hasn't made a move yet, Gaskins said.
The wave of China offerings, however, continues into next week. Of the six companies on tap to go public, Chinese Internet retailer Mecox Lane Ltd. is getting a lot of attention from investors, said IPO Boutique's Scott Sweet, who tracks and rates initial public offerings. Another Chinese company, vegetable producer Le Gaga Holdings Ltd., is also expected.
Still, not every China deal has been a success. Chinese pharmaceutical company ShangPharma Corp. fell 15 percent in its first day of trading Tuesday and remained below its offering price at the end of the week. That's indicative of a discerning IPO buyer who doesn't regard any broader sector or region of the world as a sure bet, especially after the market booms and crashes of the past five years.
Another deal, cholesterol drug developer Aegerion Pharmaceuticals Inc., priced shares of its IPO far below expectations Friday after twice delaying the offering. It closed up nearly 14 percent, however.