What is an IPO?
An initial public offering (IPO), or ‘float’, is when a private company lists on a stock exchange to raise funds by selling shares to investors, including members of the public.
Companies use IPOs to raise money that can then be reinvested to help grow the business. IPOs give investors the chance to buy shares at a set price before the company begins trading on a stock exchange like the ASX in the hope that those shares will rise over time.
An IPO normally includes a minimum amount of shares that it requires investors to purchase. Upcoming IPO’s can be found on the ASX website https://www.asx.com.au/prices/upcoming.htm
Could IPO’s be of use to you and your investing goals?
Investing in an IPO comes with different risks compared with a company that has a long listed history.
Companies may offer shares at what they perceive to be a discounted rate or they may offer some form of added value to compensate investors for the risk of buying shares in an unproven listed company. Never forget that the value of shares can fall as well as rise, once listed.
The company may predict when it expects to make money, but, as with all share market investments, this can depend on many factors, including the global and Australian economy and the future of the relevant industry.
Additionally, not all companies will pay dividends to shareholders – new companies may be more likely to reinvest profits back into the business.
It’s hard enough to analyse the fundamentals and technicals of an established company.
A company about to IPO is even trickier to analyse since there is virtually no historical information to draw on. Your main source of data is the prospectus, so make sure you examine this document carefully.
Look for the usual information but also pay special attention to the management team and how they plan to use the funds generated from the IPO.
Look past the hype to discover whether or not the IPO is a good opportunity and suited for you.