The IPO frenzy is a major contributor to the rapidly growing number of demat account holders in India.
While IPOs give investors the opportunity to invest in strong business, subscriptions will not be required just for the offer price. Just like investing in shares of an already listed company, the decision to subscribe to an IPO must be a derivative of thorough analysis.
From the fundamentals to the financials, it is important to understand the various aspects of the business before getting to where the investment decision needs to be made.
Even in that moment, it all leans towards the power of one’s vision and the possibility of adapting to the reality of the future.
However, at a higher level, there are three parameters that will help a beginner to have a strong foothold in the universal offer.
An IPO is nothing more than an offer of shares of a company that roughly implies the right to participate in a potential increase (or fall) in the value of the company.
As one begins to evaluate the effectiveness of any business concept, the evaluation of an IPO-bound company begins with an understanding of the products / services offered by the business, the competitive landscape, and the potential for business growth.
You must look for reasons to believe that the company provides a high-quality product / service that will continue to experience significant growth in sales, even though it maintains significant control over product prices.
Now, there may be a number of factors that affect the strength of your vision based on the above. It depends on the nature of the business and the environment in which it is conducted.
Some of the popular factors applicable to most companies include market share, product / service replaceability and vulnerability to change in political, regulatory, technical and any other applicable environment.
Along with business, it is essential that the financial position of the company also grows at a reasonable or higher pace and becomes stronger.
The financial condition of a company is an insight into business efficiency, efficiency and similar possibilities. Different businesses operating in different environments exhibit unique financial characteristics.
These financial characteristics must be compared with peers working in the context of unique business situations and working in as many-possible-adjustment-segments as possible. Most of the financial features are metrics in the company’s financial statements.
Some examples of broadly analyzed financial metrics include revenue growth, profit margins, expenditure and various applicable ratios.
Now, this is a clever one. A good starting point would be to compare the applicable ratios with the peer companies operating in the same segment and already listed when adjusting for its unique context.
The most popular valuation metrics are price / revenue and price / sales-like ratios. Now, the subject of evaluation is as much an art as a science.
Each company is unique and directs an individual valuation and there is nothing to say that a company returns a lower valuation ratio than its counterpart makes it more attractive.
An analysis of this ratio must serve as an indicator of how the company is positioning its values versus peers and justifying the deviation of the individual nature of the business.
There are many ways to make the right IPO investment decision but only a few would be absolutely wrong.
Investing in IPO Basis Tips or Hearings is a way to stay at the top of the wrong list as a gamble based on sensational media coverage on a profit list or offer.
While there is much more to a full IPO analysis, a beginner must strive to build a strong outlook and conviction when the market determines and reflects the true strength of the investment thesis.
Accessing, consolidating, and forming a perspective involves all available information regarding the secret sauce issue while constantly evaluating for weaknesses in one’s perception.
(Author co-founder and Chief Business Officer, Fisdom)