Companies in the market bring IPOs to raise funds. Investors also want to earn through this IPO. In a way it is good because it provides equal opportunity to retail investor. But investors do not get as much information as listed in IPO offers. However, IPO prospectus contains a lot of information to evaluate the possibility of IPO for investors. Before the bidding, if you make a correct valuation of the IPO of that company, then you get a big idea of the possibility ahead. You can decide whether to bid or not. Come, let’s discuss some things about how to evaluate an IPO.
Check the company’s financial status
Most IPOs will provide financial details of the last 3 years, including income details, balance sheets and cash flow details. Investigate whether the sales and benefits of the company are constantly increasing. Also see if the IPO affects a lot of equity and affects EPS. Most, pay attention to profitability, solvency, asset turnover ratio.
Understand the risk
According to SBI Securities, all IPO stocks are good at one price, but not at a high price. It matters how much the company leaves for investors. If the company is running in losses, you are initially taking the risk risk. Also, if the evaluation (P/e ratio) is much higher than the colleague group, the upside capacity of the IPO is also limited.
Where will the fund be used
Try to understand what the company will use the funds collected through IPOs. For example, raising IPO funds to expand capacities and increase production is generally positive for IPOs. Investors should be cautious about the use of IPO funds for real estate, general corporate objectives, unspecified acquisitions, etc. Using an IPO funds to repay the debt is fine as a once effort to reduce debt, but is not a regular practice.
Promoter evaluation is necessary
Before bidding in the IPO, see what is the track record of the promoter in the previous businesses? Does the company have succession plan and concrete management to support the promoter? In addition, to assess the actual quality of an IPO, someone should also see the quality of book running lead managers, anchor investors participating in IPOs etc.
Investigate the trend of the industry
The investigation of the trend of the major industry is also very important. It is a good idea to see leadership in the company’s specific region in which it works. Look at the growth of the industry, how the market will expand, new trends etc. Also, casual risk factors are some that many investors ignore, but may have some significant indications for the investor.
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