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 and a 28% rise in NASDAQ, and a 25% jump in Dow. The US techmarket 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 one year at least.
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 right now 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. You need to keep an eye out for IPOs from ancestry.com, Uber, Pinterest, BuzzFeed, Xiaomi, and 23andme this year.
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 a revisitation of 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. In all cases, the company constructs its prospectus for potential buyers and investors. 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. Although anhas full scope to mix fiction with reality, a keen reader can always find clues regarding the company profile, potential of revenue, and investment risks.
You should never skip the part that speaks about the company’s 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. In case the company only talks about paying off debts, that is a bad sign. Always stay away from 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 be an indication of their future.
2.Are you looking for a shortcut to success?
Although the IPO market holds many empty promises, the past success stories like Google and Facebook inspire people to invest in company public shares almost regularly. 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 repent their investment decisions right now.
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 lock-up periods. This period prevents the corporate insiders from selling their percentage of the stocks. So, while looking for IPOs, search for companies that have already passed their lock-up period. After this initial lockup stage is over, if the insiders do not start selling their shares in bulk, that means 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 thehave experienced significant delays in going public. Sometimes, the market volatility defers the process, and at other times internal difficulties hinder it. 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, if not more. A company’s history, business success, quality of past investments, and plans for future expansion contribute to the stability of IPOs along with several other factors. These four points are the fundamentals that you must always revise before making a costly decision.