Cramer: Vicious IPOs poisonous to your portfolio
Last week, the market flooded with 13 initial public offerings, making it the busiest week for IPOs in 2015. And Jim Cramer sees that this wasn't just one isolated incident, as the market has had a steady acceleration of IPOs this year.
Could they all be good for investing, or could some be toxic for your portfolio?
"Regular viewers know that I don't like it when we get deluged with so many new issues. The stock market is just like any other market: it's all about supply and demand. These IPOs all represent additional supply, and when the supply goes up while demand stays the same, you can expect prices to go down," the "Mad Money" host said.
That in mind, Cramer walked investors through the most important IPOs of last week.
First up on Cramer's radar was Alarm.com (NASDAQ:ALRM), which came public last Friday at $14 and immediately jumped 20 percent on its first day of trading. Alarm.com is all about the Internet of things, in particular the connected home, which is one of the hottest themes out there.
Not only does the company have very strong revenue growth, but it is actually profitable, and the earnings are expected to explode higher. And while it won't be a cheap stock, Cramer likes it and is willing to bet that the Street will rally around it when analysts start writing about it next month.
Greens Plains Partners (GPP) also went public last week at $15 and really hasn't done much since. This is a master limited partnership that was spun off by ethanol producer Green Plains Inc. Basically, Greens Plains Partners is an ethanol, pipeline play.
Cramer expects that the MLP will start to pay out a distribution, though this group of stocks has been out of favor lately because of increased competition from rising interest rates. Cramer is not a fan of ethanol and recommends waiting until an actual rate hike happens before even thinking about buying it.
Last Thursday a small-cap medical technology company called Glaukos (GKOS) came public at $18 a share and then skyrocketed to $31.22 on its first day of trading. The company is focused on creating products and procedures that change the way glaucoma is treated.
In particular, it has pioneered a procedure known as micro-invasive glaucoma surgery. Thus far, the company has had rapid revenue growth but is still far from profitable. And even with all of its snazzy technology, it's not clear to Cramer how Glaukos will ever turn a profit.
In the end, Cramer just has too many questions surrounding this stock for him to give it his blessing.
Finally, there is TransUnion, which went public last Thursday at $22.50 and jumped up to $25.40 on its first day of trading. While some may know TransUnion as a simple credit reporting agency, the company considers itself to be a sophisticated information provider.
However, the "Mad Money" host is not a fan of TransUnion. The company is unprofitable and was cash-flow negative in 2013 and 2014 with an ugly balance sheet in debt for $3 billion. Granted, the company plans to use most of the some $700 million it raised in the IPO to pay down the debt, but it still won't leave it in a great position.
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Plus, when Cramer did the math to figure out the company's valuation, it would still trade roughly at 38 times 2015 earnings, which is extremely expensive compared to competitor Experian (London Stock Exchange: EXPN-GB) at 20 times earnings and Equifax (EFX) at 22 times earnings. Why the heck would you buy TransUnion?
In fact, it was this deal that really made Cramer feel like IPOs have gotten out of control.
"I am not impressed by last week's crop of IPOs...These are not high-quality companies, and it worries me that we're seeing so many of them come public at the same time," Cramer added.
So, while Cramer does not bring good news with most of the IPOs, it is his job to look out for investors and make sure these vicious IPOs don't wreak havoc on their portfolio.
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