Why you should care
Because when companies think it’s a good time to dive into the stock market, well, that sure ain’t a bad thing for the economy.
If you thought you were hearing more of late about three little letters — I, P and O — well, you’re right. It’s not even May, and already, 2014’s seen a record first quarter, with IPOs raining down in a way not seen since 2000.
IPOs mark the first time a company sells stock to the public.
Sixty-four companies went from privately held to issuing their first public shares in the first three months of 2014, according to Renaissance Capital. The stocks collectively raised $10.6 billion.
But this stuff ain’t just the get-rich-quick offerings of legend. There aren’t 64 new Googles, Twitters and Facebooks wandering around out there.
Biotech companies — which play in pharmaceutical drug markets and the health-care space — accounted for half of those 64.
But seeing double the IPOs in 2014’s Q1 than we did in the first quarter of 2013 might not be quite synonymous with success. A company hitting the market with an IPO could be in transition or could need an influx of funds that selling stock provides.
So far, 2014’s IPOs haven’t lifted all boats. And we know what you’re thinking: bubble. Fair enough. Perhaps these releases are too much of a good thing, threatening to water down the market — and causing share prices to drop. Some of those concerns appear to be playing out already. The iShares NASDAQ Biotechnology Index shows that influx of biotech stocks plummeting in April, after a February high, although a slight uptick has already begun.
Of course, let’s put this in a little perspective. As Louis Basenese at Wall Street Daily notes, the big IPO numbers still represent just a tiny percentage of the overall market — 2.4 percent of the S&P 500, to be exact. If all of these biotech firms completely crashed, the overall market might sigh but not shudder. One way to look at the numbers: Take the expert valuations of the stock, and then halve them. Then you’ll have a closer approximation of their worth.
But let’s all take a minute to appreciate what’s going on here. Even if the stocks come out of the gate overvalued, at least they’re coming. Companies are less likely to seek the open market in a downturn. They certainly don’t break stock-release records.