Doing well by investing in an initial public offering (IPO) seems to be almost the Holy Grail of investing. Everyone wants to get in on investing in a company when it is young, new and fresh. For people who invested in FitBit, they struck IPO gold. FitBit manufacturers put out 36 million shares. They were valued at $741 million. Since then that stock has increased by more than 50%. People also get more than money when they succeed at investing in an IPO, they also get bragging rights. Prime brokers recommend the following tips for evaluating IPOs.
Look for honest, objective IPO data.
It makes sense that it is harder to find good, objective data on IPO companies. They are young companies that, unlike established, publicly traded businesses have not undergone a whole lot of scrutiny. They do not yet have analysts and others crawling all over their books and financials. What you need to do is search online for what others say about the company.
Prime brokers advise that you check the competition and overall status of the company’s industry’s health. You should look for their press releases and statements and what other companies say about the one you are interesting in investing in. The only real drawback is that you may find IPO information that makes you miss out on a great investment opportunity.
Who has already invested in the company?
Look for IPOs who have the backing of strong, prime brokers. While the company may still be private, they probably have some early investors. Look into who these people are. If they have a strong track record in picking winners, it may show the IPO will do well. Of course, everyone has a bad day and just because they have done well in the past does not mean the IPO company is a sure thing.
Do not fail to read the prospectus.
Some investors think that because it is written by the company itself, the prospectus has no real value but it can give you a lot of information. Prime brokers say that you need to pay attention to companies who are using their assets to invest in more research and development as opposed to paying down debt or on overhead. You also need to take their forecasts with more than a grain of salt but you should read the entire thing to get their take on how the company is doing and where it is going.
Skepticism is your friend.
You should always be a little cautious when investing in a new company. While there are a lot of opportunities to make a decent amount of money, you can also lose your shirt if you are not careful. Prime brokers remind you to go into this, and any, investment with your eyes wide open.andnbsp;
Watch what the insiders do.andnbsp;
There is a period of time when it is illegal for the people who are the “insiders” at any company to sell their stock. What you want to do is see what these people will do with that stock when they are allowed to sell it. If they keep it when they can sell it, that is a good indication that the stock has real value and you can invest in it yourself. There is no “tried and true” way to see if a stock will do well but there are ways to get a sense and this is one of the best.
The term “IPO” was just the prevue of the prime brokers for years. In the 1990s, the term started being used by the general population. The people who generally gain the most when they invest in IPOs are institutional investors. They can buy large quantities of stock before it goes public. These backers are the reason thee companies start with such high valuations. When an IPO goes public, the number of available shares offered rep represents about 10 to 15% of the total amount for that company.
IPOs can offer investors a great chance to get in on a great investment opportunity when a company is still new and fresh. Do your research and you should do well.