It's hard to win when one is diagnosing the health of the IPO market. When the market is up and the public's appetite for new stocks has been whetted, new offerings pour in at what may be an inopportune time if the froth runs thick. Yet when Wall Street is in a lull before another bull run, investors are less receptive to a new IPO.
So it's safe to say that the stock market has been hungry of late. More than 200 companies have gone public this year. That's roughly as many companies that went public in 2001, 2002, and 2003 combined!
Last week was historically busy with 18 companies kicking off their publicly traded lives. It was the most active week on the debutante front in four years. From Venetian ownerLas Vegas Sands (NYSE:LVS) to payday cash advance specialistAdvance America Cash Advance Centers (NYSE:AEA) to office furniture manufacturer Knoll (NYSE:KNL), your stock listings just got a little bit longer.
The pipeline isn't going to run dry anytime soon. Global investment firm Lazard Freres filed to go public over the weekend, all but assuring that 2005 will also have a busy slate of new equities to consider.
How did the IPO market turn itself around? You don't need to guess. It was Google (NASDAQ:GOOG). No, it wasn't the fact that the popular search engine chose to go public. In fact, at the time it was dealt a blow when it didn't stir up enough demand at its initial price range that ran up as high as $135. Not finding enough takers, the company ultimately went public at just $85 a stub.
Now trading at $180, it's the fact that the stock has more than doubled that now finds others rushing to tap the market for capital. Since Google's August IPO other notable upstarts such as Shopping.com (NASDAQ:SHOP) and eCost.com (NASDAQ:ECST) have followed suit.
For investors the opportunity to buy into exciting companies early in their growth cycle is tempting. In fact, it's what our Rule Breakers newsletter often aims to find. Yet you do have to be careful out there. Always ask yourself why a company is going public in the first place. Has it simply been ineffective in generating cash flow on its own or does it really need the money to help expand itself quickly yet prudently?
The only thing worse than getting caught in an IPO frenzy is to wind up buying the wrong new offerings.
Have you gotten into any of the hot IPOs this year? Excited about next year's potential offerings? How does the IPO process work exactly? All this and more -- in the Initial Public Offerings discussion board. Only on Fool.com.
Longtime Fool contributor Rick Munarriz would go public, only the float would be a miserable single share. He does not own stock in any company mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
