Recently we are seeing lot of IPO Buzz everywhere with many start-ups planning to go public later this year, tremendous opportunities seem to be opening up for investors. Recently NYKA IPO launched which was oversubscribed 82 times and tremendously performed on listing day and we can see lot of demand for new age/internet-based companies
There are some factors that all investors, especially those who are investing for the first time or are novices in financial issues, should keep in mind. They are:
1. Learn the Past to Understand the Future
The first thing to do before investing in an IPO is to check the company profile and background. An investor must know the financial history of the company and evaluate its performance over the past few years to understand its growth potential. This research will also throw some light on why the company is coming out with an IPO and where it wants to use the money collected from the public (for expansion or to pay loans).
2. Evaluate A Company
A company's valuation is one of the most important factors that an investor has to consider. The best way to evaluate it is to compare its price with that of its peers. You can also calculate this using the price-to-earnings ratio and return on equity. The price-to-earnings ratio is done by dividing the share price of the stock by the earnings per share.
3. Be Cautious About Oversubscription
A company offers a limited number of shares during an IPO. And the allocation of shares to each category of investors is pre-decided. Sometimes, the number of applications made for an IPO can be higher than the number of shares offered. But the allotment of shares among the applicants is done proportionately and it is possible that you may get fewer shares than you had applied for. So, it's wise to be cautious about over-subscription.
4. Read the Prospectus Carefully learn about risk factors
Most of the fine prints about a company are contained in its prospectus. It has details about the company's business, its summary and financial statements, capital structure, management views, etc. The prospectus gives overall information about the IPO including risk factors which will help you understand about external factors which disrupt your investment amount.
5. Don't Fall for Hype
Finally, be objective in your judgement. Look at the stock market positioning: Whether it is in a downtrend, raising the possibility of the IPO being affected negatively. Additionally, do not get carried away by any hype while investing in the IPO.
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