Many investors are asking should we participate in an IPO or wait? When a company debuts on the stock market, that is to say its shares are sold for the first time to the general public, many investors wonder if it is an opportunity. Sould we participate or not in this initial public offering or IPO. In this article, we will attempt to answer this thorny question. The answer is not as simple as it seems.
How do you Know if an IPO is Worthwhile or Not?
To know if an IPO is interesting and therefore whether or not to participate, it is necessary above all to be able to know the growth potential of the company that is putting its shares up for sale. Be aware of various information such as the company’s quarterly performance reports, which go public before any IPO. It is also possible to consult the S-1 report which is the mandatory report before an IPO. But this report contains only limited information and most often relates to only a few years of practice, regardless of the age of the company.
As a private investor, you will therefore not have access to the same data as financial institutions, which can for example benefit from face-to-face meetings with the managers of these companies before their introduction. However, it is possible to get a general idea of the growth and development prospects of these companies by consulting all the data available online and the opinions of analysts. In any case and before you decide to participate in an IPO, you must be careful. Do not let yourself be influenced by the strong media coverage of some of these operations, which is only intended to generate appetite. .
Concretely, How to Participate in an IPO?
Now let’s get down to business by finding out how to participate in an IPO and therefore how to buy securities of a company that is going to be floated on the market. There is a notable difference here between the treatment of institutions and individuals. Indeed, while institutions can buy securities at the starting price indicated by the company. Retail investors are often not so lucky, especially when the IPO concerned is eagerly awaited.
As a result, individuals often pay more for their securities than the price that was originally announced. In any case, the earlier you take a position on this introduction, the less you will pay for your titles. Most investors prefer to participate in IPOs early in the process because during the first trading day volatility is often high and the price of a security can rise very quickly.
Irregularities in the Performance of Newly Listed Shares:
Another thing to know about IPOs is that newly listed securities often perform very erratically. If we look at the performance of the shares of companies listed on the stock exchange in recent years, we can see mixed results. Worse still, we observe that these stocks underperform, which is often greater than the medium-term outperformance, that is, in the two years following an IPO. Before investing in an IPO, it is therefore necessary to prepare to keep this investment for the long term before seeing a real trend emerge and accepting the high volatility that will impact the stock during this period.
Also, it is up to you and you alone, depending on your investment strategy. To decide whether or not you want to participate in an IPO. Remember that the risks are often more important than the performances if you are considering a short-term investment. Also remember that you must first of all make your decision after having obtained as much information as possible about the company making this IPO. Allow yourself time to assess its real potential for long-term growth.