The IPO frenzy is back, and it’s easy to get caught up in the excitement. We’ve seen this movie before – a rush of investors eager to get a piece of the action, often without understanding the risks. This time around, let’s approach IPOs with knowledge and caution.
Investing in an Initial Public Offering (IPO) can be thrilling, but it’s essential to tread carefully.
Here are ten key points I would like you to consider before investing:
- Know the Business: Understand how the company makes money. What are its primary income sources? A solid grasp of the business model is crucial for assessing its potential. Are they really making money or operating on loan? These are questions you should ask. Know the Business: What are their primary sources of income?
- If you can, please scrutinize the company’s financials: Dive into the company’s financial statements – balance sheets, income statements, and cash flow statements. Look for profitability, revenue growth, and financial health indicators like debt levels and liquidity ratios.
- Industry Check-Up: Analyze the industry the company operates in. Is it growing? What are the market trends? For instance, if it’s a bank, compare it to other banks. The same goes for fast-moving consumer goods (FMCG) companies and others. Compare apple with apple.
- Valuation Matters: Determine if the IPO price aligns with the company’s earnings, growth prospects, and industry peers. An overpriced IPO may lead to significant losses when the market corrects itself.
- Read the Fine Print [The Prospectus]: The prospectus is your roadmap. It provides critical information about the company’s operations, financials and risks. The first place you should read up is the “Risk Factors” section. Pay close attention to it; because It will highlight potential challenges that could impact the company.
- Lock-Up Period: Understand the lock-up period. This is when insiders can’t sell their shares. Once it ends, a flood of shares could hit the market, potentially lowering the price.
- Regulatory Landscape: Familiarize yourself with Nigerian Exchange Group (NGX) rules and how they may impact the company you are about to invest in.
- Management Matters: Assess the leadership team’s experience and track record. Experienced and capable leadership can make a significant difference in whether the company can navigate challenges and capitalize on opportunities.
- Institutional Investors: Institutional investors are large financial organizations like pension funds, mutual funds, insurance companies, and endowments that invest significant sums of money. When these big players show interest in an IPO by buying a substantial amount of shares, it’s often seen as a positive signal. They are perceived as “deep pockets”. They have the resources to conduct extensive due diligence, employing teams of analysts to scrutinize a company’s financials, management, and market prospects. However, always conduct your own research.
- Market Buzz and Media Hype: Be cautious of excessive media hype. Make decisions based on thorough analysis, not just news headlines.
Investing in an IPO can be rewarding, but it’s essential to approach it with knowledge and caution. Diversify your investments and consult with a financial advisor to align your goals with your investment strategy. For more financial tips and resources on wealth creation, financial planning and different investment options, i made free tutorial videos for you, feel free to watch on our channel- “women wealth and wills tv”. Remember, informed decision is the key to financial success.
Have a restful weekend and happy Investing!
ALSO READ: ‘My good friend’, Atiku salutes Obi at 63
