How to Buy IPO Stocks
Many clients seek our advice on how to buy IPO stocks to help boost returns. Initial Public Offerings or IPOs also known as “flotation”, “float” or “new company listing”. It will be owned by private shareholders who may wish to sell some of their holding as they have been busy growing the business for a long period of time and want to capitalise on their hard work. Although this is understandable it always needs further careful consideration before deciding on investing.
A company will IPO if they are seeking capital to grow. They may be looking at making acquisitions, or to recruit better staff and incentivise those staff with shares or share options to further charge growth.
This creates an opportunity for investors as the company may want to list 25% of their company on the market for £25 million. This means that the company obtains growth funds and investors get the opportunity to invest into an established business that has a proven team chasing growth.
IPOs that find themselves in demand can give a real kick to your portfolio and provide you with a ground floor investment opportunity.
Successful IPOs have included;
- Merlin Entertainment floated at 315p and moved to 390p which is a 23% hike in price.
- In 2013 Royal Mail floated at 330p and jumped to 490p on day 1 and powered on to over 600p within a few short months.
However, sometimes the price upon listing does not go the way that investors anticipated. Facebook were priced at $38 in 2012 and fell back to $18 shortly after so this can backfire if you take a short term view only when buying IPOs. Although if you held your nerve and avoided the initial sell off, they are now priced at over $120 per share.
Due to our city network we are able to show private investors how to buy IPO offerings that they might not get the opportunity to achieve elsewhere and so real benefits are available.
There are numerous considerations when investing in IPOs, chiefly, why is the company listing. If the listing is for positive growth reasons and the owners have not loaded up the balance sheet with excessive debt, then you could include this in your list of options. When a company lists with debt it can inhibit growth and stagnate its share price as we have seen with some high profile stocks including Manchester United and Debenhams.
You may choose to construct an investment strategy that includes buying IPOs and selling at the open, usually at a substantial profit.
This is known as investing as a stag.
How to Buy IPO Stocks from a Broker
The process can be a simple one;
- You review the documents released by the company and decide to invest
- Complete the application forms
- Depending on the demand for the IPO your application may be allocated in full. If the issue is oversubscribed then your allocation will be scaled back.
- Upon listing you either sell or hold the stock for the long term depending on your strategy.
Clients also ask if the stock should be bought after the IPO has listed? This is something that is worth discussing with your investment manager because every IPO is different. In some circumstances this strategy will work but you have to evaluate it as you would any other stock and not get caught up in the hyperbole that can surround a new listing.
I hope we have shown you a small insight on how to buy IPO stocks. As you can see there are many pitfalls that should be avoided but there are also many opportunities in the IPO market. Cornhill are at the forefront of providing our clients with choice. To be included on our IPO information list please complete your details below.
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