When a company decides to go public, it offers an IPO or Initial Public Offering—the very first sale of the stock the company issues. Before going public, a company is deemed private with a few shareholders.
The main aim or a company to go public is to raise capital. When investors buy a company’s shares, its liquidity rises paving the way for expansion plans and acquisitions. An added benefit is seeing the name of the company on the stock market which is a marker of pride.
As an investor, you can invest into IPOs and stand to make a hefty sum, even millions. Reading this might make you ask: how to buy IPO online or where do I put my money. However, before you go ahead and empty your wallets, you need to consider a few points before you invest into an IPO.
1. Do Your Research
Research into the company and its business. Take a look at the shareholders and their numbers. This will give you a fair idea on who takes the major decisions of a company and whether it is balanced or not.
2. Read The Prospectus
The company prospectus will give you an insight into why the company wishes to go public. It is to fund their expansion plans or to pay off existing debts?
Check the company’s balance sheet, cash flow, and profit and loss account. If the finances look strong, there is a good reason to invest in the IPO. If not, you might want to reconsider your decision.
4. Watch The News
Whenever an upcoming IPO’s date nears, finance news channels will cover it. Watch these channels and keep a tab on and read the online news as well. You will get a third-person’s point of view on the IPO and whether it is worth investing or not.
The IPO allotment status is pre-decided i.e. distribution of shares is decided before the launch. If there is a higher demand for an IPO than supply, there is a good chance you might receive fewer shares.
These four points will help you make an informed choice whether you should invest in an upcoming IPO or not.