A Financial Analysis of Cowen Group Incorporated

As far as IPOs go, any financial analyst will tell you, as an investor, that investment banks, or other financial companies will be your best bet for higher capital gains. When examining the services that investment bank, Cowen Group Incorporated (COWN) can provide as a newly publicly traded company, the evidence presented prima facie seems to acquiesce with the prevailing sentiment. After looking at the fundamental and technical analysis of this company coupled with the ideology of investing with newly established financial corporations, as an investor, you will come to understand the multitude of benefits associated with purchasing shares early in such an industry.

As reported in one of my other articles regarding investment bank IPOs, after examining 32 random investment banking IPOs, only four or 12% of these companies which have been in the market for more than one year had posted capital losses and only marginal ones relative to other IPOs. Furthermore, including all the IPOs in the market regardless of file date, only seven out of the 32 have seen any kind of capital loss regardless of any kind of fundamental or technical analysis. Juxtaposing such data to companies in industries such as technology or healthcare, and investors will find out how great a difference there is between the financial industry and the rest of the market. When examining Cowen, I absolutely can spot notable indicators to support such reasoning which will lead to a very favorable upward potential for investors of this company. In addition, because 2007 has the possibility for interest rate cuts which is favorable to investment banks and has historical data to support an upward market movement, next year has the possibility to become a tremendously optimistic one in terms of share price for Cowen.

When looking at the limited fundamentals that Cowen provides, an investor should immediately spot the growing revenue associated with this company. Over the past year, while revenue margins are not terribly shocking, the modest increase, coupled with lower revenue costs, has situated a promising margin growth relative to gross profit. While Cowen?s EBIT has decreased on a year to year basis, such is a result of becoming publicly traded and having the financing portion of its cash flow statement under fire because of the initial costs associated when a company trades publicly. Nevertheless, more importantly, operating income has rose in dramatic fashion, and operating margins in general have grown nearly 10% over the past trailing twelve months. In addition, like many other investment banks, Cowen supports a negative enterprise value which means that it provides a tremendously higher number relative to total cash when juxtaposed to total debt which, when added to the market value of this company, yields a negative output. Furthermore, the debt Cowen has incurred can continued to be exploited in a positive manner as the current ratio Cowen provided of about 5 is not only significantly lower relative to bulge bracket companies such as Merrill Lynch, but exemplifies that Cowen has a lot of potential to incur more liabilities to help finance further growth without the added expenses of not having enough assets to cover its debt. Thus, the potential looks extremely bright for this company in this regard if liquidation is a priority. In addition, the PEG remains relatively strong, and coupled with an extremely valuable enterprise value to revenue number and price to sales number, this company has the possibility to perform extremely well. Such is said because the low numbers recorded signifies both value juxtaposed to the rest of the industry and the potential for the share price to grow to further levels, disregarding its six month high: a situation very few companies can boast about. Its true the forward P/E ratio is a bit high relative to what it is currently, but such was made on the basis of a smaller 52 week expectation, and since Cowen is a new firm, a slightly higher multiple is to be expected. Thus, the limited fundamentals that are provided help the reasoning that investing in this company, especially since it is an investment banking IPO, will provide solid capital gains for investors for at least another five years.

As this company has only recently been put on the public market, no significant technical analysis can be made to signify upward potential. As volume (excluding the opening day) has been relatively stable throughout the five month duration, the only indicator I can use is the slow upward trend that has occurred when looking at a 50 day price average. If such continues with the favorable conditions in 2007, such evidence should be enough to connate a year rally. Therefore, while technical analysis is limited for a company which has recently been trading publicly, because of the surprising strong fundamentals and the positive economic conditions supportive in 2007, investors need to look closely at Cowen and think about purchasing some shares before this company starts its proposed rally.

Dennis Biray presents advice on all kinds of topics ranging from finance and investing to fitness to sports. For more information email him at dbiray@gmail.com, or to view other articles written by him visit http://www.biraynetworks.co.nr