The Stock Market Hasn't Done This Since 1983. What It Means for Investors

In 1983, 850 companies went public. That's a record that stood until 2021.

In this video from Motley Fool Backstage Pass, recorded on Dec. 6, Fool contributors Danny Vena, Jason Hall, and Jon Quast ponder what the implications are for investors today.

Danny Vena: I really like sharing these little metrics this year because it seems like there's a never ending news cycle. It seems to always provide me with a new IPO metric to share. I'm going to share my screen again here.

I saw a headline, of course, just recently. I'm hitting the wrong button here. Sorry about that. Present. There we go. As of November 19th, 2021, 958 companies have gone public on the U.S. market. Now, this includes regular standard IPOS. It includes direct listings, and special purpose acquisition companies which have gone crazy over the past couple of years.

There were 351 standard IPOS in 2021 thus far, and 607, what the Nasdaq classified as other IPOS, which includes special purpose acquisition companies.

If you look at the last record that they had. Sorry about that. Now I've lost my cursors. It is no longer there. There we go.[laughs] If we go back to what was happening in 1983, we had 850 public debuts. The fact that we've gotten to 958 so far, and the year isn't even over yet, it not only ended the record but it's crushed.

Jason, any thoughts on the IPO market over the past year?

Jason Hall: It's strange because you think about some of the returns of so many of the SPAC's -- losses -- in terms of stock prices, and some of the ones that are going to talk about now. My initial reaction to seeing some of the data about the level of poor performance was, oh man, it's terrible so many investors have been sold this bill of goods and so many terrible, crappy companies, but then I look at my own portfolio and the performances of some of my favorite companies over essentially the same period of time, and it's made me pause and it's maybe resets, and it's reminded me that for a lot of these companies, they're total crap, they're dogs. But for a lot of them, they're good businesses there, and the market is still rationalizing what they're worth and we really probably need to largely give it more time.

But by and large, I think there has been this massive, a lot companies that have used SPACs to go public and it's made the IPO market hotter. There's so much cash out there that's also made the IPO market hotter. A lot of companies have probably gone public that really weren't ready to go public and at valuations that were just simply bananas.

Vena: I think it's interesting that you brought up the subject of valuations because two of the companies that we're going to talk about later in the show went absolutely crazy right out of the gate toward the end of last year. That was Snowflake and C3.ai. If I remember correctly, both of those companies saw triple-digit gains or very close to that on their very first day of trading in December of last year.

Jon, what are your thoughts.

Jon Quast: A thought that I have is we're going to talk about Sweetgreen here in a minute that went public via the traditional initial public offering IPO process. What I found interesting about that, and I'm just thinking about this, in 2020 by my count, there were six special purpose acquisition companies specifically dedicated to bringing a restaurant brand public. They were able to raise hundreds of millions of dollars in SPAC money to bring a company like Sweetgreen public. That's just sitting there. As of this time, I believe that still four of those restaurants specific special purpose acquisition companies are still sitting there without a merger target.

Sweetgreen, seeing that money on the table, chose to go the initial public offering route, and why is that? I think we're going to look at Sweetgreen, for example, and see that it got a very premium valuation in the IPO market. I think that the IPO market is just so hot, these valuations are just so blistering red hot out of the gate that Sweetgreen looked at their option with the SPAC money and said, "We can actually make more going through the IPO process," and that's what they did.

Vena: Based on how it performed, if if I remember correctly, again, I think Sweetgreen was one of the companies that may have raised their range target price prior to actually what their initial plans where they said we're going to price it in this range and then actually raised their range a little bit when they did go public because the demand for the stock was so high from investors.