Every one wants to make a quick buck in an IPO ( Initial Public Offer). A young couple told me recently that they had planned investments anticipating a killing through investments made in a spate of IPOs. Their youthful exuberance led them to believe that they had a sure shot approach to almost instant financial success.
Yes, a Tech Mahindra gave you a 307 % increase climbing to Rs. 1483 on March 23, 2007 against IPO of Rs. 365. But all stocks don’t have such attractive returns.
Business Today has “Six Questions To Ask Before You Take The IPO Plunge”:
- Are the promoters known and genuine? Check out past records, promises and performances, and criminal proceedings against them
- What is the reason for the IPO? Is the promoter cashing out, or is the business in growth stage and needs to expand? Is the sector growing? The company should operate in an industry that’s growing at a decent clip or has the potential to grow
- Where does the company stand? Do a comparison check with its industry peers. Take an in-depth look at the financials, balance sheets, profit and loss, industry growth, products and compare with the big and strong players in the segment
- How is it valued? Valuations should be fair and profit visibility should be near-term. It should not account for profits that are two-to-three years down the line. Ideally, it should be valued lower than similar-sized companies
- Is the business scalable? The company’s business should have the ability to grow in size over time, both organically and inorganically
Ask these questions and then take the plunge. Otherwise, your plunge may, over a period of time, cause you more grief than joy.