IPO Analysis

Investing in IPOs and recent IPOs is much like investing in seasoned stocks, but with the noted exception of the limited availability of information.

For IPO and recent IPO firms , a good place to start your research is the prospectus.

The prospectus generally provides information related to the offering details, the company’s business, its markets, its products, its strategies, risks associated with the company, and the all important financial information.

How can you evaluate a newly-public company? Here are factors that need to be considered:



Do you understand what the company does?

Is its industry in a growth mode?

Does it have a competitive advantage?

How does a company compare to its peers on its most basic financial criteria?



Price-earnings ratio
Price/sales
Debt/equity
Operating cash flow growth (make sure cash flow is positive)
Historical sales growth
Historical earnings growth


The biggest obstacle you will find is lack of data. Even if you buy after the initial public offering has settled in, IPO's are still speculative, with little or no public trading history. So, make sure IPO's are relegated to a very small portion of your portfolio.

As always, we recommend that you perform the needed due diligence prior to acquiring a position.(Does this sentence have any meaning?. Most of the organizations write this sentence at the end. If we can not describe a due diligence methods, why say do a due diligence? But this is the statutory warning?)

A final tidbit – recent IPOs with positive GAAP earnings tend to be the ones that turn into winners.

http://www.brokeradviser.com/article.cfm?ID=51
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