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Take a look at how local companies have performed in stock offerings.

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DBC's IPO Report covers recent initial public offerings.

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Hot IPOs Make Cold Comfort For Later Losses

Washington area companies raised a record $4.2 billion last year by selling stock and so far this year have brought in another $2.3 billion in new equity capital.

The $6.5 billion raised on Wall Street since the beginning of 1996 by companies in the District, Maryland and Virginia has provided cash to finance dozens of new high-technology ventures and fueled the growth of many of the region's established corporations.

Investors bought $2.25 billion worth of stock in 46 emerging companies in the region that raised capital through initial public offerings and invested $4.25 billion in shares of 47 companies that sold additional stock to finance their growth.

[See how some local companies have performed in stock offerings.]

While the massive influx of investment capital enabled area companies to finance huge research and development projects, created thousands of jobs and made millionaires of many entrepreneurs, it was at best a mixed blessing for investors.

An analysis of the recent stock offerings using the Bloomberg News database shows investors who bought shares in the 93 offerings were just as likely to lose money or to break even as to make big gains on their investment. As of the close of the stock market Friday, 46 of the recent issues were up from their offering prices, 37 were down and 10 were essentially flat, trading within 5 percent of the price for which the stock first sold.

In general, big losses were more conspicuous than big winnings. The biggest percentage gainers were mostly smaller companies, like Strayer Education, the most successful IPO in the batch. Shares of the Washington-based chain of colleges, which trade on the Nasdaq Stock Market as STRA, are up 130 percent since their initial offering of 3 million shares at $10 apiece last July. Strayer has made about $39 million for investors.

Yet the gains by small companies whose stocks have risen since their IPOs are overshadowed by recent stock offerings that have gone south.

Investors are out $200 million as the result of the 60 percent drop in shares of HCIA Corp. of Baltimore since its most recent offering. They've lost $135 million on stock of Richmond's CarMax Group, which is down more than 30 percent from its February IPO. And they're down $100 million since the February secondary offering of U.S. Office Products of Washington, whose shares are also off about one-third.

The latest market statistics also show that after an exhilarating start early in the year, the market for new shares has cooled dramatically, just as it did last summer when technology stocks fell out of favor with investors. After last year's lull, Wall Street recovered its appetite and offerings soared anew.

Both the number and the size of offerings have slipped recently. Fewer than a dozen regional companies have stock issues in the works. That excludes a handful of stock offerings that were filed last year but have not yet been completed; offerings that have been on hold that long are considered all but dead by investment bankers.

In contrast to the $2.5 billion worth of stock sold by companies in the Washington region so far this year, the IPOs now preparing to come to market total only about $250 million.

Historically, the vast majority of Washington IPOS have been in the $50 million-and-under range and even secondary offerings by established companies have rarely exceeded $100 million. But as the number of public corporations in the region has grown, so, too, has the scale of local offerings.

U.S. Office Products, for example, has grown into a multibillion-dollar-a-year business in a little more than two years as a public company by buying office supply dealers around the world. Starting with a $32 million IPO in February 1995 and a $50 million secondary offering a few months later, U.S. Office has raised more than $550 million on Wall Street. It sold $141 million in stock last year and another $330 million worth in January.

Though it is still the Wunderkind of Washington companies, U.S. Office has turned out to be a costly investment for those who bought stock in its most recent offering. In the January offering, the stock sold for $33 a share. Traded as OFIS on Nasdaq, the shares closed Friday at $22.63. The offering was for 10 million shares, which means a total loss to investors approaching $100 million.

Another mega-deal that produced immediate losses for investors was Circuit City's spinoff of the CarMax Group, which sells used cars in much the same way that Circuit City moves TVs, stereos and appliances: with vast selection and low-key sales techniques.

CarMax (KMX on the New York Stock Exchange) sold 21.8 million shares Feb. 4 at $20 a share, which drifted down to $13.75 at the close of Friday's trading. That's a loss of more than $135 million in shareholder value in less than three months.

Even bigger losses have been suffered over a longer period by investors in HCIA Inc., a maker of software for the health care industry, which raised $332 million in additional capital last year. HCIA sold 4.16 million shares in May for $51 a share and 2.22 million more shares in August for $54.13. HCIA shares closed Friday at $19.25, down more than 60 percent since those two offerings. The loss of shareholder value totals about $200 million.

HCIA's losses resulted from a combination of self-inflicted wounds and the stock market's fickle affection for technology stocks. When Wall Street was in love with any company that wrote computer code or made something with a chip in it, HCIA shares soared and the company took advantage of the market to sell more stock.

Then, after investors began getting nervous about tech stocks, HCIA issued financial reports that were far less favorable than expected, twice sending the shares into nosedives that slashed their value by 50 percent in a matter of days.

That kind of breathtaking volatility has become far more common among companies in the Washington region over the past few years. It is an additional risk that investors take when they put their money into high-tech companies, particularly those selling stock to the public for the first time.

Investors in IPOs run the risk that a new company will not be able to pull off the business plan it has developed or that its promising new product will be made obsolete by some other firm's breakthrough. But the market has not only become more fickle, it has also developed a propensity for treating companies in the same industry as if they were joined at the hip.

Tech stocks are a good example. When the sector is in favor, even stocks of second-rate companies often move up. But when tech stocks lose their luster, even the best firms become wallflowers on Wall Street.

Two Maryland telecommunications companies that were, briefly, this years' hottest IPOS demonstrate that phenomenon. Ciena Corp. of Savage and Yurie Systems of Lanham went public just two days apart in February. On Feb. 5, Ciena Corp. went public at $23 a share and the stock immediately jumped more than 60 percent, to $37. On Feb. 7, it was Yurie's turn; its shares jumped 26 percent on the first day of trading, from an offering price of $12 a share to $15.13.

Where are they now? Yurie shares (YURI on Nasdaq) closed Friday at $9.50 a share, 20 percent below the offering price. Ciena stock (CIEN on Nasdaq) ended the week at $23.87, so close to the IPO level that investors would just break even after paying transaction costs.

Yurie's stock made the round trip even before the company issued its first quarterly financial report, which showed a slight downturn in earnings. In its first quarterly results, Ciena reported that earnings rose to 13 cents a share from 3 cents, but that didn't seem to matter to the market. The review of the recent offerings makes one other point clear: The most likely way for investors to lose money on IPOs was to buy "penny stocks," which these days means shares selling for $5 or less.

The worst area penny stocks last year, all traded on the over-the-counter bulletin board: N-Vision Inc. (NVSN) a McLean maker of virtual reality computer displays whose stock has slid from $5 to 50 cents; Guardian Technology International Inc. (GRDN) of Sterling, the bulletproof vest company whose chairman is Oliver North, down from $5.10 to 48 cents; and Xybernaut Corp. (XYBR), a Fairfax maker of wearable computers, down from $5.50 to $1.44.

Their performance in the first year of trading is an unreliable predictor of the prospects of most companies. Most of the stocks mentioned that have suffered big losses are recommended by independent analysts as good companies whose slumps represent buying opportunities for investors who can tolerate the risks and volatility.

That advice doesn't apply to the penny stocks, however. The only brokerage firms that have recommended any of them are the ones that took them public, and the underwriters of Guardian and N-Vision have gone out of business.