Initial Public Offering (IPO), used to give investors guaranteed profits. However, things have changed. Huge first-day gains often end up with disappointments in the long run. The trend among investors has also slowly shifted into focusing on long-term prospects. Below are five points that you could keep in mind upon investing in IPOs.
Analyzing objectively the companies having IPOs before investing
Researching on companies set to go public could be hard work. Usually, private companies have limited coverage or analysis upon their performance. Hence, it will be difficult to find out their cracks instead of good news. What you need to do is keep in mind that the information you get might be written by the company itself instead of an unbiased third party.
In order to keep your analysis objective, here are several points worth to search according to Investopedia. First and the foremost is the general information of the company and its competitors. Then, try to look for their financing. Finding for the companies’ past press releases and overall industry health could also help you a lot. Investopedia also suggests investing in good intel. In investing, research is one of the most important things, especially in investing for IPOs.
Find out their brokers
Investopedia suggests considering investing for companies with a strong underwriter. Obviously, renowned quality brokerages will choose to take control of companies with a similar reputation and potential. However, if you are new in investing, large brokerages might not let you take IPOs as your first investment. Investopedia noted that individual established investors who are long-standing, and often high-net-worth customers are usually their priority.
Before investing, find out the future prospectus of the companies having IPOs
Prospectus can be a double-edged sword. The prospectus that some brokerages provide could be a source of information for the subject’s risks and opportunities. It may also give you insight on how they plan to use the money raised from the IPO. Investopedia pointed out that an overly optimistic future earnings outlook could be an alert.
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