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What Should I Do before Choosing a New IPO?

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  • Written By: Laura M. Sands
  • Edited By: Heather Bailey
  • Last Modified Date: 08 November 2016
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Before choosing a new IPO, you should perform your own due diligence by reading a company’s prospectus and determining an auditor’s opinion of the company. In addition to this, you should closely watch the stock market and similar IPO reviews to determine whether or not the IPO’s timing is conducive to a strong market. When considering investing in a new IPO, speak with a full-service stock broker about the offering and weigh her or his advice in whether or not the timing is right for a company’s initial public offering.

IPO filings may appear to be very attractive to new investors. Until a company’s prospectus has been thoroughly reviewed, however, it is impossible to understand the full scope of a company’s business, history and potential. In addition to reading the prospectus, an auditor’s report of the company’s overall health can be beneficial when making a decision to invest in a new IPO. In particular, you want to determine whether or not an auditor has included a "going call" to an initial public offering, which simply means that an auditor has raised real concerns about a company’s long-term growth and sustainability.

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Investors considering a new IPO should compare the current offering to similar past IPO listings as a way to assess an IPO’s timing. Watching IPOs as well as the stock market, in general, will help investors develop a feel for the current financial market which helps in the process of ultimately choosing an IPO. Be aware, however, that this is not a foolproof method for evaluating the complete worthiness of an IPO simply because emotional enthusiasm related to certain trends can be fickle. Still, such enthusiasm can and should be taken into consideration before an IPO investment is selected.

Prior to choosing a new IPO, it is always a good idea to speak with a reputable analyst or full-service stock broker to collect her or his insight on the value of the company filing an IPO. Analysts and brokers are trained to evaluate such offerings and can offer helpful advice before your ultimate decision is made. This individual can also direct you in your own assessment of a new IPO, particularly if you are inexperienced in this area. Similarly, seeking the advice of other seasoned investors about the IPO you are considering may also be of value in choosing the most profitable offering. Joining a local investment group or visiting online financial forums can help connect you with such investors.

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