Tips for investing in an IPO

What is Initial Public Offering or IPO?

Basically, the first sale of stock by any company to the public is known as IPO(Initial Public Offerings). The market experts always suggest new investor to inter into a market through Initial Public Offerings (IPO). But in the present volatile scenario, it is very difficult to earn profit through investing in an IPO. Therefore, it is very essential to know the basic tips of investing in an IPO.

Before investing in an IPO we must analyse the following:

  1. The fundamental aspect of the company offering an IPO: – The most important tips before investing in an IPO are to know about the fundamental aspects of the company. The fundamental aspects or the financial characteristics of a company include to the amount of debt a company has, the level of profitability, the available cash on-hand, inventory and receivable turns, as well as return on equity, assets, and investment.
  2. IPO objectives: – The objectives of the company behind offering an IPO must be analysed. It may include raising of funds for reducing company debt, for business growth in future and ensure high future earnings’ growth of a company.
  3. Issue price :- It is very admissible fact that issue price of an IPO should be reasonably attractive. An investor can itself decide the issue price of an IPO by comparing its price with respect to its competitor in the industry, order books, checking various ratios, future growth plans, risks etc.
  4. Sentiment of the market :-  It is also an important aspect to analyse that subscription of an IPO is driven either by fundamentals of the company or driven by speculation. An investor  should focus  more on the fundamentals and pricing of an issue rather than speculation.
  5. Financial condition of an Investor :- An investor should always keep in mind that investing in an IPO is also an investing in equity where the risk factor is very high. Therefore is suggested for an investor to invest only their risk capital not repeat not the borrow money in the mark

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