Investment Opportunities in IPOs

IPO stands for Initial Public Offer and investment in IPO is not a new phenomenon. While it provides wonderful opportunities to investors to mint money, it can also become dangerous if individuals do not exercise caution in their choice of IPOs that they invest.

Tips for IPO investments: 

Below mentioned are a couple of tips that can hold an individual in good stead while investing in IPOs. By investing in IPOs, investors block a huge chunk of their cash for about a month or so. Moreover, invariably, the number of shares allotted to individuals is not even half of whatever they apply. This is a critical thing, as it can happen that the shares may get oversubscribed at least 6 to 7 times and investors may invest only a small amount. The ultimate result would be they might end up not getting a single share. In these circumstances, not only do they lose the interest for that time being, but also lose opportunities of investing in other IPOs that were open during that time.

In order to avoid such situations, it is better for investors to try investing only during last couple of days of an IPO. In addition, they need to keep an eye on the number of times the issue got oversubscribed. Investors can easily monitor this by going online. With a hit and trial method, they can get a fair idea about the amount of shares that they would get, based on the money invested and the number of times the issue gets oversubscribed.

Important Parameters of Consideration:

Although most IPOs result in gains for the investor, there has to be some watchfulness regarding the IPOs to invest. Generally, it is a good idea to invest in the IPOs of those companies that have yielded good returns to their investors. It is also better to have a look at, the previous record of accomplishment of such companies and the number of years of their existence. This would at least give an idea to the investor that, the promoters have a good understanding of the business. In addition, they are not fly by night operators.

The other important factor is to have a look at the P/E multiple. It stands for the Price/Earning Multiple. Here, the "pricing" is as per the present market price of the share, and "earning" is the earning per share of the company. P/E multiples of stock indicate the number of times the market is willing to pay for the current earnings of the firm. For instance, a stock has an EPS of $ 10 and the market price of the share is $ 100, this means that P/E multiple is 10 or the investors are willing to pay 10 times the company’s earnings.

On most occasions, promoters launch their IPOs at boom times and extract the maximum of out them as the IPOs in all probabilities get oversubscribed many a times. Nevertheless, this does not go well for the investors, as they are stuck with their shares at a higher price with lesser chance of appreciation.

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