NEW YORK (CNN/Money) - Shares of RedEnvelope rose on their first day of trading Thursday, as the online gift retailer's debut in the market ended a long drought of e-commerce IPOs.

The stock, listed under the symbol "REDE," rose 55 cents, or 3.9 percent, to close at $14.55 on Nasdaq.

The company late Wednesday announced its initial public offering of 2.2 million common shares, or about 25 percent of its shares outstanding, at $14 each, the low of its target range of $14 to $16.

RedEnvelope (REDE: up $0.55 to $14.55, Research, Estimates) said in its SEC filing last month that it planned to raise about $41 million and use the proceeds to fund working capital, including the build-up of inventory ahead of the holiday season, and invest in new capital equipment and information technology projects.

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The San Francisco-based company has been around six years and has never posted a profit. Nevertheless, some analysts say this is a niche player that has the right ingredients in place to turn things around.

Richard Peterson, IPO analyst with Thomson Financial, said the decision to go public is a step in that direction. But there are a few odds against a blockbuster IPO success story here.

Only 26 companies have gone public this year: four as technology players, a couple of names from the financial services, insurance and banking sectors, but not a single retail name. The stocks of those companies on average are up 20 percentage from their offering price.

Retail had two close calls this year. Apparel maker White House and athletic footwear maker Converse both withdrew their IPO filings shortly before they were acquired.

"This is the slowest year for IPOs since 1979, when there were 69," said Peterson. "Last year there were 96, including just eight retail IPOs."

"Most IPO investors are still committing to bigger names with a good financial track record," added Peterson. "It's hard to say how well RedEnvelope will do in that regard. The bottom line is that the company has to improve sales and reduce losses."

If you want to make a pricey gift of personalized fine-wool blankets, a towel warming rack or a window herb garden, click on RedEnvelope.com.

Although the company hasn't yet posted a profit, it has managed to shrink its losses substantially year-over-year. It posted a loss of $7.7 million on sales of $70 million for its fiscal year 2003, an improvement from losses of $14.1 million on sales of $55.8 million in the year-earlier period.

Meanwhile, its total sales (70 percent through the Web site orders and 30 percent through its catalog and phone orders) grew 25 percent last year on top of a 67 percent gain the year before.

Performance of retail IPOs Company  Offering price  % change (9/17/03)  Dick's Sporting Goods (debuted Oct. 2002)  $12 a share  +196%*  Aeropostale (May 2002)  $18 a share  +58%  Big Five Sporting Goods (June 2002)  $13 a share  +18.6%  Overstock.com (May 2002)  $13 a share   +27.5%  Petco (Feb. 2002)  $19 a share  +71%  Gamestop (Feb. 2002)  $18 a share  -4.5%  Asbury Automotive (March 2002)  $16.50 a share  +9%  Kirkland's (July 2002)  $15 a share  +15.7%    *percentage change from offer price  Source:  Thomson Financial

The e-tailer's customers ballooned to 1.3 million last year, up from 448,000 in 2001.

"This IPO is generating plenty of buzz," said Melanie Hase, IPO analyst with Renaissance Capital. "RedEnvelope is so close to profitability. You won't have to wait 10 years to see that happen."

Said Hase,"They have a strong management team, they've improved both sales and operating margins and their customer base is growing strongly."

Is RedEnvelope's IPO a sign that investors once badly burned by the dot.com demise of the late 1990's, are willing to embrace e-commerce names again?

Thomson Financial's Peterson doesn't think so. "RedEnvelope is an isolated name. If we see four or five e-commerce companies announcing IPOs, then I would say yes."

With the Nasdaq up 38 percent year-to-date, analysts say investors are betting again on technology names, including e-tailers. Shares of Overstock.com (OSTK: Research, Estimates), the online discount retailer that went public last year, are up about 28 percent from the offering price of $13.

Among the big guns, Amazon.com's (AMZN: Research, Estimates) stock is up 158 percent this year, eBay (EBAY: Research, Estimates) up 71 percent and Priceline.com (PCLN: Research, Estimates) is up 211 percent.

But don't ignore the laggards. Shares of Drugstore.com (DSCM: Research, Estimates), the online drugstore chain which went public in 1999, have dropped 60 percent from their offering price.

"Obviously we're not going back to 1999 when any dot.com that went public just flew off the shelf," said Hase. "Investors today are very careful and very picky." She does, however, anticipate another dot.com IPO -- online travel agency Orbitz -- later this year. "It might happen in November."

RedEnvelope declined to comment, citing the SEC-mandated quiet period.