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.

What Do They Do?

Cramer's last step to investing in a coming IPO is to analyze the company itself. What does it actually do? Is it profitable? How big are its end markets? Cramer said all of these are questions that investors need to ask.

For some companies, especially consumer ones such as apparel companies or retailers, it's pretty easy to figure out what they do and how well they're doing it. But for others, including complicated technology or biotech firms, this may be a more daunting task.

But Cramer said a company with large end-markets, one that's profitable and one that's got a great brokerage behind it is what he calls thrice-blessed and has lots of room to run.

Lululemon Athletica ( LULU) was one such company, he said. The yoga-based apparel maker was tapping into a huge market, was already profitable and had Goldman Sachs behind it. He said this stock continued to grow, even in the tough times of 2008 and 2009, because of its huge potential.

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-- Written by Scott Rutt in Washington, D.C.

To email Scott about this article, click here: Scott Rutt

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At the time of publication, Cramer's Action Alerts PLUS had a position in GS.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC Universal or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."

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Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.

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