Read the Fine Print
Just because a company's stock is coming public doesn't mean it should be, Cramer warned, which is why knowing how to research a coming IPO is more important than ever. What should investors be looking for in the prospectus? Cramer said he looks at everything including the company's management, its investors and which brokerage firms are bringing it public.
When it comes to management, Cramer said it's likely investors will have never heard of those at the helm. That's OK, he said, especially for tech companies. Nobody knew who Sergey Brin of Google (GOOG) or Mark Zuckerberg of Facebook were before their IPOs, but those companies seem to be doing OK, he added.
Next, Cramer said he looks at the company's investors. He said to be leery of companies with large private equity shareholders as they are often eager to cash out on the same IPO that they're enticing you to buy into. If firms have indicated they're investing for the long term, that's a good sign as they'll be right there with you.Finally, Cramer said he wants to know which brokerages are bringing a deal public. Some, he said, are better than others and have a reputation for doing right by investors. Firms like Goldman Sachs (GS), Cramer's alma mater, won't stake their reputations on a questionable IPO, while a smaller, lesser-known firm might.