Tips for investing in IPO stocks (Initial Public Offering)

By Nipapun Poonsateansup, CFP® Dependent Financial Planner

IPO (Initial Public Offering) is a stock that is traded for the first time to the public to be listed on the stock exchange. SET has basic requirements for the qualifications of companies that want to be listed on the stock exchange. This means that the company that came to offer IPO shares has passed certain screening standards from the Stock Exchange of Thailand.

IPO stock characteristics

As the name suggests, it is a new stock that has just been traded in the market.
Therefore, the difference between this type of stock compared to the general stock is that the stock has not been traded. So, we do not know the exact market price. highest, lowest, resistance. Allowing the stock price to run up or in the opposite way, the stock may have a low price booked for a long time. Until this stock is known and learned the fundamentals of the company and comparing them with other stocks in the same business group. After that, the price began to adjust to the basis that should be.

From the characteristics, new stocks that have recently entered the market are popular with speculators. Especially if the company has a small number of current shares because it is not difficult to make the price go up.

Before reserve shares, investors can request to see the prospectus. There will be important information for decision making as follows:

1. The nature of the industry in which this company operates. By having to consider what the industry is likely to be in the future, what is the competition? is there nature of monopoly? In addition to analyzing IPOs that investors are interested in, investors should analyze other companies in the same industry that what is the performance? and what is the stock price for comparison.

2. Competitiveness of the company, by considering how this company has market share, what is the operating policy? is there a competitor and who are the competitors? In addition, investors may try to use the service, for decision making.

3. The purpose of raising funds, such as for use in business expansion, repayment of debt and use as working capital of the business. Which will help assess future opportunities and risks.

4. Analyze the financial statements of the company, financial ratio analysis and anticipating future results. By analyzing the income statement to see the profitability, analyze cash flow statements to see the ability to generate cash flow and quality of profits and analyze the balance sheet to check the financial status, debt repayment ability and the capital structure of the company. Although the financial statements before entering the market will be less detailed than the financial statements of the listed shares, investors still need to carefully analyze the financial statements of the IPO shares before investing. 

5. Consider shareholders, especially the major shareholder. Who is he and How reliable is he?
And shareholding ratio as being a major shareholder or holding a small number of shares. Because if it is the latter hen entering the market may have been sold after the expiration of the prohibition period. This can affect the price of the stock and the credibility of the company in the future.

6. Investment conditions while IPOs enter the market, it is important to consider. Because if the market conditions tend to be bad may result when entering the market. The stock may have a low price and make us lose.

IPO subscription

Because the IPO shares are relatively small compared to all investors, allowing only a small amount of people to receive the reserve shares. Even though we have analyzed it well that this stock is a good stock, we may not be able to buy it. In general, investors will be able to purchase IPOs in two ways:

1.  Buying IPO shares before entering the market

Based on past IPO investment statistics, if the stock market has a good trend, the IPO shares that will be traded on the first day will have a chance to stand above the reserve price and often give higher returns than the reserve price. Therefore, IPO subscription is considered an investment with a high-profit opportunity within a short period of time. On the other hand, if the economic situation is not good, the IPO shares may have the opportunity to have a lower trading price than the reserve price. Resulting in the loss as well.

2. Purchase IPO shares in the market when the shares are traded

Investment in this period Investors must carefully study the basic information of the IPO stock. And should not hurry to invest in IPO stocks during the first 1 month of trading. Because at the beginning of that trade, there will be high speculation causing the stock price to be very volatile. Therefore, investors should wait for the IPO to trade for a while. To stabilize the stock price and reflecting the fundamental factors of the business better Thus reducing the chances of loss and helping to improve long-term returns