Deciding to apply for a new IPO is a daunting task. If you have a BO account and planning to apply for a new IPO, there are so many things to consider before you start investing in the share market. And when it comes to a new IPO, there are a lot of variables to look at. Thus, it is very important for traders and future traders to know the indicators of an excellent new IPO. As the IPO process in Bangladesh is now quite simple, it has leveraged the number of people who are applying for IPO. As the number of new shares in the market is also increasing, it is important to understand the things to consider before applying for a new IPO. With that thought, let’s have a look at the ten things to consider before applying for a new IPO.
Market Condition of the Organization:
The current situation of the organization that is entering the stock market with a new IPO has to be considered. If the organization is operating well and has a good market share, it is highly likely that it might reflect the same in the stock market. On the other hand, if the company does not have an impressive track record, it is also a matter of concern before deciding to apply for a new IPO. So, if you have heard news about the upcoming IPO of any company, you should include researching about the market condition of the organization as a groundwork before you decide to apply.
If you are wondering how to know about the market condition of a new IPO, you can look at the current market condition of a new IPO is to go through the recent news regarding that particular company, have a detailed look at the decision the organization is making recently to understand the overall condition of the organization in the market.
Performance of Similar Category Company:
Another indicator of knowing how an IPO will perform is the performance of a similar category company. For example, you are applying for a new IPO of a telco company. In that case, you can see the performance and track record of other telco companies in the stock market. It will not give an accurate indication, but you can comprehend how the new company might perform in the stock market. You can figure out and predict a trend that is common in similar types of organizations. So, before applying for a new IPO, consider reviewing the performance of the companies of a similar category that are already in the stock market.
A few basic things you can look at to understand an existing company’s performance are to look at the earning per share, amount of dividend the organization is offering, quarterly performances, and current market trends. From an analysis of these indicators, you will get an idea regarding how the similar organizations are performing in the market.
Years of Operation:
Years of operation of the company is also another key indicator. If you are thinking of applying for a new IPO, you can consider the years of operation of the organization. A company that has been in operation for quite a sometime is trusted than a new company. However, years of operation is not a single key indicator for understanding a new IPO, however combining with other variables, the years of operation will give additional insight on the current situation of the organization.
Earning Every Fiscal Year:
From a trader’s perspective, it is important to understand the fiscal year earning of the company. The increasing trend of earning will reflect on the EPS, bonus share and profit share of the company in the future. An upward graph of the yearly earning indicates a company with a healthy financial condition. This is very important for any organization to sustain in the stock market and benefit the shareholders in the long run. If you want to know the details of the earning of different organizations, you can get the details from the organization’s annual reports. It will give you a clear idea regarding the overall financial condition of the organization. Based on that, you can do your research to figure out the credibility of the company. Financial credibility is very important to consider before applying for a new IPO.
Every IPO will not generate the result you expect. However, we can try our best to ensure we are not getting on the wrong train. Reserve assets of an organization will indicate to the situation of the company might be on rainy days. Hence, it is essential to know the reserve asset of a company. This will help you get an idea of the overall financial condition of the company. If the reserved assets are higher, then it is a good sign for the company. On the other hand, a lack of reserve shares indicates the company might not have enough reserves to give back up if things go south. When you are planning to apply for a new IPO, you will have to consider the reserve assets the company has to make a better idea of the organization.
Compliance with Governance:
If you are applying for IPO in BD i.e. Bangladesh, it is essential to look at how the company acts when it is about maintaining the compliance issues. Abiding by governance compliance is not a mush have for new companies coming with IPO. But it gives a favorable nod when it has a clear track record. It also indicates that the company is most likely to maintain the compliance that is important to the Stock Market. You can always cross-check how an organization is doing in terms of maintaining the compliance and governance issue.
Before applying for a new IPO, it is a good practice to know about the directors of the company. This is essential to get an overall idea of how the management of the organization morally is. This is not a significant indicator of any specific criteria, and rather it is an additional feature to look at. In simple words, when applying for an IPO, knowing about the directors of the company is not a must-have, instead it is good to have considering there are other more important factors to consider before applying for an IPO. Looking at the background of the directors will give you additional information regarding the credibility of your organization.
Good will is in other words, is the brand value the organization has. You can analyze how the brand is doing in terms of the overall value of the organization. Applying for IPO of a well-known brand mitigates the risk to some extent. You can put a level of trust on the brand due to its market value and popularity. This is a subjective notion that you can consider while you are deciding which IPO to apply for. However, it is an important factor to consider before you apply for an IPO. To know if the organization has the necessary good will you can look at their overall advertising presence, acceptance within customers, and connection of the brand with the customers and so on. Analyzing these will provide you an idea regarding the goodwill of the organization.
Book Building System:
The book building method is one of the process of determining the price of the share as it enters the market. If an IPO determines the price based on the book building method, then there is a chance that the trading of that share will start at a much higher price than the face value. In the book building method, eligible investors within the market set the price of the share through auction. As a result, the price is usually higher than the face value of the share. So, if an IPO is entering in the market with the book building method, then there is more chance this share will perform better.
However, the book building method is not a must-have for a good IPO. It is an added advantage. So before applying for new IPO, do a research and try to find out if that IPO is finalizing the price of the share through book building method or not.
Manager to the Issue:
The issue manager or manager to the issue introduces new securities to the public. Many financial institutions in Bangladesh are functioning as the issue manager for companies that want to go public. The track record of the manager to the issue often indicates to the performance of the upcoming IPO. Have a look at the portfolio of the issue manager to get a comprehensive idea about what sort of companies they introduce to the market. A good portfolio will indicate whether you can put your eggs on this basket or not.
So if you are planning to invest on any of the upcoming IPO, then you can consider analyzing these factors to create an understanding of the IPO. The factors we have mentioned here are not the only indicators of the performance. There are many other factors that you can consider for analyzing how the overall performance of the new IPO can be. Based on the analysis of these factor, you can summarize the factors that are essential to you. This will narrow down the details and help to have a laser focus on the key factors.
Muhammad Rakibul Hasan15 Nov 2020 - 3:40 am
A must read before applying for IPO. Thanks for the post.
admin15 Nov 2020 - 6:08 am