Research Before You Take a Chance: 7 IPO Investment Tips for the Most Profit

IPO – Initial Public Offering concept with hand pressing a button on blurred abstract background


About 8,497 companies have issued IPOs between 1980 to 2018. As an investor, you might’ve considered investing in famous IPOs such as Facebook, Alibaba, and General Motors. Yet, you might’ve thought about it twice because you didn’t want to put so much money on the line.

Sometimes investing in IPOs may not be the right call to grow your portfolio. But, you might be missing out on the chance to invest in the best IPO. Not sure how you can figure out which initial public offering is the best addition to your portfolio?

We’ve got you covered. We’ll tell you tips on how to find the best IPO investment. Read on to learn the top must-know IPO investing golden nuggets.

How to Invest in IPOs: 7 Tips to Make the Right Call

Investing in a company’s initial public offering can be challenging for novice and seasoned investors. If you haven’t invested in IPOs before, you should consider it as a great strategy to grow your investments. While it may take some time to develop your own IPO investment strategy, it can take your portfolio to the next level.

Don’t know how to find the best IPO to buy? Here are 7 tips to make the right call when investing in IPOs.

1. Conduct a Thorough Research on the Company

You may think investing is learning how to time the market. Yet, trying to time the market is one of the worse mistakes novice investors make. Successful IPO investing comes down to doing your own research.

Many novice investors believe they should follow their investment advisor’s advice. Yet, before going all in you should research the company you’re investing in.

How has the company been performing against its competitors? What’s their industry ranking? Does the initial public offering fit your investment objectives?

These are some of the questions that can tell you more about the offering. Consider comparing it to other industry offerings. An example is how Facebook investors compared the offering’s potential to Twitter’s IPO.

2. Don’t Leave Anything Out of Your Application

Getting invited to apply for an initial public offering doesn’t guarantee that you’ll be able to purchase any shares. If your application is incomplete, the issuer will reject it on the spot.

You should consider bidding at the cut-off price to increase your chances of having shares allotted to you. Don’t know how to check the status of allotted IPOs? Learn more here about IPO allotment and how to know if your application is approved.

3. Pick IPOs Backed by Strong Brokers

If a small firm backs the offering you’re considering, it’s recommended that you conduct thorough research of the firm’s track record and background. While large brokerage firms aren’t immune to backing less promising IPOs, they aim to back high-quality initial offerings.

Yet, you should keep in mind that offerings backed by small firms are less competitive. Therefore, it will be easier to secure pre-IPO shares for novice and seasoned investors alike.

4. Read and Analyze the Prospectus

Expert and novice investors underestimate the importance of reading the Prospectus. The investment issuer files this document providing details about the initial public offering. Company background, offering price and the number of shares are some of the information you may find on this document.

It’s recommended that you read and analyze the IPO prospectus to gauge the risk of making this investment. Like in any investment, the key to successful investing in initial offerings is understanding the risk and reward of buying the commodity.

5. Take a Look at the Company’s Future Projects

The current success of the company doesn’t guarantee the valuation of the offering. When you invest in any commodity, you’re betting on the investment to maintain and increase its value. The future value of an initial offering depends on company management and future projects.

Before investing in an offering, you must take a hard look at any future projects the company is developing. Does the company have any contracts with big industry players? Is there a high demand for their product?

You should take a hard look at the future projects on their pipeline and the company’s potential on their industry. An example is an initial offering for a tire company, it would be a promising investment if the company has contracts with the biggest car manufacturers.

6. Take a Hard Look at the IPO Valuation

Before investing in an initial offering, you must take a hard look at the stock or investment valuation. While this process may be very technical for novice and seasoned investors, you may get an idea of where the offering stands by comparing it to its competitors. Compare the offering price to other competitors initial offering and its performance.

Was the competitor initial offering a good investment? How is this offering different from its competitors? Also, you should analyze if the commodity will improve your portfolio diversification.

You don’t want to put all your eggs in one basket. If you hold several investments in that industry, you should consider holding back on investing in the initial offering. Novice and seasoned investors should always aim to own a diversified portfolio.

7. Wait to Invest Until After the Lock-In Period

After the issuance of an initial offering, there’s a lock-in period where stockbrokers and underwriters can’t sell their shares. The length of this period varies on an offering basis.

You should keep an eye on the shares until the lock-in period ends. The shares may be the right buy call if the underwriters and brokers hold the stock after the period ends.

The Bottom Line About Making the Right IPO Investment

While there isn’t a set formula to find the right IPO investment for your portfolio, it will all come down to your research. Don’t fall into the trap of investing in the offering because your advisor or other investors recommend it. You should try to learn as much as you can about the company.

Take a look at their revenue and sales. What’s their ranking in their industry? Also, you should research their CEO, board members, and any other key employees.

You should analyze all your research, prospectus and compare the offering’s potential against its competitors. It’s recommended to develop your own IPO research plan to gauge how it can skyrocket your profits. We’re confident that if you follow our tips you’ll make the right IPO call today.

Want to learn more helpful investment advice? Check out our Investing blog section for more insightful articles.