Back in September, I shared two companies that filed plans to go public – ones that could be standout performers when they finally debut.

Well, today, it’s time to add a third company to the list.

First, I suggest you get reacquainted with my five hallmarks of a “hot” IPO,” which I always base my determinations on.

With that in mind, here’s why you should keep a close eye on Demandware (Proposed Ticker: DWRE)…

[ad#Google Adsense 336×280-IA]At the Intersection of Two Double-Digit Growth Trends

Based in Burlington, Massachusetts, Demandware is a leading provider of software-as-a-service (SaaS) e-commerce solutions.

It allows customers to outsource all their e-commerce needs including designing, implementing and managing their e-commerce sites, mobile applications and other digital storefronts.

Big whoop? It is! Especially considering that the global retail industry accounts for roughly $12 trillion in annual sales, with the fastest growth coming from the e-commerce segment.

Since 2005, e-commerce retail sales outstripped overall retail sales, increasing an average of 17.3% each year versus 4.8%. And there’s no end in sight to this trend, either.

You see, online retail sales still only account for a small percentage (2.7%) of the total market. So there’s plenty of room to grow.

The problem for retailers, though, is that e-commerce is expensive.

Significant upfront costs for infrastructure and development exist. And then there are sizeable ongoing costs associated with maintaining and staying up to date on the latest e-commerce technologies.

But that’s where Demandware comes in. Its SaaS model lowers costs, reduces time to market and ensures customers are always using the latest and greatest technology.

Given such benefits, is it a surprise that companies are expected to adopt SaaS solutions like Demandware’s more and more?

Technology research firm, Gartner, estimates that the $21 billion SaaS market will increase by an average of 16.3% per year through 2015.

Even better, Demandware’s all-star customer list proves that the company is already starting cash in.

At the end of the third quarter, Demandware boasted 91 customers – up from 23 just three years ago – including leading retail names like Hugo Boss, Carter’s, Barneys New York, L’Oreal and Callaway Golf.

Three More Hallmarks of a Standout Performer

Now let’s evaluate the company based on my other criteria…

Demandware meets the age requirement. The company was founded in 2004, so it’s been around long enough to demonstrate viability. Keep in mind, that’s not something most IPOs during the dot-com days could say. The average IPO back then hit the public market at about four years of age.

The company (just) passes the trailing 12-month revenue threshold of $50 million, identified by researchers at The University of Florida as a strong predictor of future stock price performance.

And, in terms of profitability, Demandware is making progress. It swung from net losses of $25.1 million and $10.4 million in 2008 and 2009, respectively, to net income of $0.3 million in 2010.

Ideally, I’d like to see another year of profitability. But the company’s bottom line is clearly trending in the right direction.

The last criterion to consider, of course, is valuation. Because we don’t want to overpay for growth.

But we’ll have to wait until Demandware finalizes its IPO plans before we can determine whether the price is right. So for now, put Demandware on your “Hot IPO Watch List” for 2012. And stay tuned in for future updates.

Ahead of the tape,

Louis Basenese

[ad#jack p.s.]

Source: Wall Street Daily