Currently, I’m investigating an IPO offer. I don’t own any private ownership. I’ll be purchasing the shares on the market first day (or second or after things settle down) just like everyone else.
IF I decide to buy which is a big if.
Now some people will tell you that IPO’s are a crapshoot, a gamble. There’s no share trading history. No support levels. No research to be done.
The last is, of course, wrong. There’s more research to be done with an IPO and most of that research has to be done by the investor, not necessarily analysts (so no being lazy).
The first thing I do is ensure that I have a concrete footing in the industry. I look at comparable companies. I look at their Price-Earnings Ratio. Their market capitalization. Their financial statements. I look to see if previous new entries grew the total sales or merely ate other companies’ lunches (called cannibalization, when sales come from other areas and aren’t “new” – who says investing isn’t graphic?). I look at what geographic markets are doing well. How are new offerings (stores, restaurants) doing? That sort of research.
Then I look at the information I have on my IPO. And there is information, usually quite a bit. The first place to look is the prospectus, filed with the U.S. Securities and Exchange Commission. That has financials. Number of locations. Much of the stuff that investors can find in publicly traded company annual reports. I Google the company. I Google the management. I Google the owners (especially if its owned by hedge funds). What’s the style? Why is the owner giving up ownership?
I compare the IPO company to a few of the established companies. How big can the IPO company get? How long will that take? How much money is that going to take (‘cause there could be secondary offerings)? What is the growth factor? What is the risk factor? How much am I willing to pay? When would I sell?
It isn’t a perfect calculation. Investing never is but if I build in enough of a buffer (which I always do), I’ll make money (which I don’t always do ‘cause sometimes my buffer isn’t big enough).