How to decide which IPO to apply & which to avoid ?

Investors have shown keen interest in IPO these days. So, how will you decide which IPO to apply and which to avoid. This article will provide you the key areas for stock analysis

There are 5 key areas which retail investors keep in mind when investing in IPOs


1. PROMOTER’S BACKGROUND – is this their first venture, do they have other unlisted firms. If they have listed firms then what is the performance and how much dividend the firm has given. If it is their first venture, then look at the criminal and legal background of the promoter.


2. FINANCIALS of the company for 3 to 4 years. This includes the balance sheet & profit & loss a/c. See if the revenue, profit is growing. Debt position of the company. What is the debt and sales ratio. If it is equal or more, then it is risky situation


3. LEVERAGE & WORKING CAPITAL CRISIS. Inventory as a percentage of sales. If this percentage is more than 30-40%, that’s the sign of a working capital crisis.


4. There are some companies in which you will see a sudden spike in revenue and profits just prior to the IPO. It may not always be a bad thing but it is always good to further cross check


5. VALUATION: Compare the PE ratio with the company competitors. The P/E ratio is calculated by dividing the stock’s current price by its latest earnings per share. A high P/E ratio suggests that investors see it as a growth stock. It may also mean that the stock is overvalued. The average P/E of S&P 500 Index stocks is 25.

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