The process of making the shares of a private limited company available to the public in a new stock offering is called Initial Public Offering (IPO). The value of the new financial assets traded in the stock market is set by supply and demand.
The stock evaluation experts decide what a stock is worth. If the stocks are traded lower than what they decide then they will capitalise on the market to purchase shares. IPOs are considered to be unique stocks because they are new stocks. They are analysed less thoroughly than the companies that have an established trading history.
Different opinions exist for the evaluation of IPOs. Some think IPOs are riskier than stocks because they have not been analysed or scrutinised by the market. Some think due to the lack of historic share price performance it provides a buying opportunity. Various methods exist to analyze an IPO.
Evaluating an IPO
When there is demand for these new stocks they tend to appreciate as soon as they become available in the market. This is because the demand for these issues is higher than the supply. The price of an oversubscribed IPO increases until there is an equilibrium between supply and demand.
You should consider the following points when analysing IPOs:
- Why has the company decided to go public?
- What is the competitor landscape for the company’s products or services? What is the current position of the company in the market?
- How will the company utilise the money raised by the IPO?
- What are the growth prospects of the company?
- What profitable level does the company expect to achieve?
- What is the management of the company like?
- Has the company achieved any successful business ventures?
- Do the people involved have experience in running a public limited company?
- Does the management have sufficient business experience and qualifications to run the company?
- Does the management own any shares in the business?
- What is the company’s operating record?
All this information has to be provided by the company in the Form S-1. After reading this form a stock analyst will get an understanding of the characteristics of the business and operations. The analyst will be able to decide on a valuation for the company. This number can be divided by the number of shares to get the price of the stock.
Appreciate offers an app for online trading and you can easily trade online in stocks, bonds, ETFs and mutual funds.
Here's what investing ₹10,000 in top IPOs would have made you 👀
No comments:
Post a Comment