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4 things to keep in mind before purchasing IPO stocks

2017 was a good year for the share market and IPO, but it had nothing on the IPO market of 2018. The previous year saw 59 VC-baked IPOs, a 28% rise in NASDAQ, and a 25% jump in Dow. The US tech IPO market is happening right now, with names like Dropbox and Spotify joining the game. The US’s VC-backed IPO market has reached a whopping $6.9 billion, and experts predict a sharp rise in the market share in the next year at least.

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According to reliable sources, several big shots, including Lyft, Sonos, Airbnb, and Sonos, are attempting to join the IPO journey. We are looking at an impressive line-up that can change the world economy and the lining of your pockets if you know how to tap in on the opportunities. The IPO valuations can be significantly high for the most famous names, but that does not look like a deal-breaker considering the promising deliverables. This year, you need to watch for IPOs from ancestry.com, Uber, Pinterest, BuzzFeed, Xiaomi, and 23andme.

After seeing a couple of big names and impressive numbers, jumping on board is not enough for making smart investment decisions. When a corporation goes public, it experiences a remarkable amount of changes. It is a tumultuous time for the CFOs and CEOs. Companies may require revisiting their business policies to be profitable in the future as a public sector. Here are the four things that can help you make the correct investment decision –

1. Are you giving enough importance to the corporation prospectus?

Just like a piece of juicy celebrity gossip, you need to take the prospectus of an IPO with a grain of salt. Although, an entrepreneur, has full scope to mix fiction with reality, a keen reader can always find clues regarding the company profile, potential revenue, and investment risks. He company constructs its prospectus for potential buyers and investors in all cases. They have full reason to cover up their weaknesses and glorify their strengths. The prospectus is a window into the company’s operations and finances.

You should never skip the part that speaks about its plans for the money the IPO raises. For example – a company that promises to leverage the new capital for expansion and new projects is a good sign. That is a bad sign if the company only talks about paying off debts. Always avoid those IPOs, whose prospectus mention using the funds for paying outstanding debts only. What they do with the capital will depend on them, but their prospectus content can indicate their future.

2. Are you looking for a shortcut to success?

Although the IPO market holds many empty promises, past success stories like Google and Facebook inspire people to invest regularly in company public shares. Over the last few decades, dangerous rumors about the miraculous gains from IPOs have been doing their rounds in the stock and equity market. The path to riches is hardly that quick or straight. All IPOs involve significant risks. While we remember the hugely successful ones, we tend to push the market fiascos to the backseat. Do you remember Pandora and Groupon? They hardly delivered what the roadshows promised, and thousands of people now repent their investment decisions.

3. Do you have enough patience to make the right investment decisions?

Success does not come easy for the individual investor as it does not come readily for companies going public. All public shares have pre-defined lockup periods. This period prevents corporate insiders from selling their percentage of the stocks. So, while looking for IPOs, search for companies that have already passed their lockup period. After this initial lockup stage, if the insiders do not start selling their shares in bulk, they have faith in their calculations and predictions. You will still find public stocks, but the investment will be secure.

4. Has the IPO of your choice experienced multiple delays?

In the competitive market, releasing IPOs is not as easy as it seems all the time. Some reputable enterprises like the Albertsons have experienced significant delays in going public. Sometimes, market volatility defers the process, and internal difficulties hinder it at other times. Nonetheless, you should always research the company for such signs of weakness. If a corporation has experienced multiple delays in releasing IPOs in the past, you might want to consider refraining from investing there.

IPOs are risky. They bear as much risk as any share and stock on the market, if not more. A company’s history, business success, quality of past investments, and plans for future expansion contribute to the stability of IPOs, and several other factors. These four points are fundamentals you must always revise before making a costly decision.

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I work for WideInfo and I love writing on my blog every day with huge new information to help my readers. Fashion is my hobby and eating food is my life. Social Media is my blood to connect my family and friends.
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