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How to find a promising IPO? 5 evaluation parameters

IPO is an investment tool with potentially very high returns. Shares of companies going public can grow by tens or even hundreds of percent on the first day of trading. You may have heard of fantastic IPO profitability rates. Here are a few recent examples:

  • AirBNB home rental service: +112% growth on the first day of trading.
  • Beyond Meat meat substitute producers: +163% on the first day.

Investing in the right IPOs can double or even triple your capital very quickly. One day’s growth can be higher than years of investing in stocks that are already traded on the stock market.

By the way, did you know that you can now invest in IPOs even in Metatrader? Now, participation in IPOs of global companies is available to traders through their familiar brokers. You can check out the list of companies preparing for their IPO right now in your MT5.

For traders, this is a new tool, so in this article, we want to share with you five tips for choosing promising IPOs. We’ll show you how to find the next Beyond Meat, AirBNB, Inari Medical, and other companies that can multiply your capital when they go public.


1 parameter: Product

  • First and foremost, it is important to study the product or service that the company earns revenue from.

    Is the product unique? How many similar products are on the market? If it is an innovative product or service, the company may have a very promising future. This is a good perspective – buying shares of a future monopolist.
  • Does the product have demand? How successfully is the company selling it? A company can produce a unique product, but it makes no sense if no one is willing to pay for it. The best way to assess demand is to look at the price. If it is rising, it means that the product or service is in excess demand.
  • What are the prospects? It is worth evaluating whether the product will occupy a significant place in consumers’ lives in the future. It is a bad idea to invest in a company whose activities are outdated or at odds with new trends.

Product analysis is very important. The future profitability of the company depends on it, and therefore, the evaluation of the business.

2 parameter: Niche

Special attention should be paid to companies in promising and developing niches, such as electric cars, artificial intelligence, medical developments, new technologies, etc. The markets of these companies may be small now, but we expect growth in this niche. Therefore, the profits of companies that worked in it earlier will also grow in parallel.

This effect, for example, explains the success of Tesla. A relatively small company producing just over 1 million cars a year is several times more expensive than Toyota, which produces 10 million cars a year. The fact is that everyone is waiting for the electric car market, and everyone understands that in the future, Tesla will earn a lot. That is why its shares are so expensive.

3rd parameter: Growth dynamics

It is necessary to study the dynamics of key indicators of the company over the past years.

  • Does the company’s revenue increase from year to year? By how much?
  • Is the company’s profit increasing? By how much?
  • What is the level of debt? If its share is decreasing, it is a good signal.

This information is easy to find. Before going public, companies publish reports and conduct large-scale marketing campaigns to promote their business to potential investors.

4th parameter: Investors in previous rounds

This is also public information. The list of investors who invested in the business earlier can be found on specialized services such as Crunchbase, Pitchbook.

If there are well-known funds among investors that have often concluded successful deals in the past, it makes sense to listen to their opinion.

These investors have already demonstrated their ability to find stocks that show strong growth. There is nothing wrong with copying such deals into your portfolio.

5th parameter: Fair valuation

This is a variant for advanced investors who try to evaluate companies on their own. You can calculate how fairly the current share price reflects the expected future profit.

There are many different indicators for this, such as P/E and its analogues. But if you are not a specialist in fundamental analysis, you can simply look for analysts’ opinions on the upcoming IPO.

It is important to remember that you can choose a promising company with an excellent product and a large number of well-known investors in previous stages. But this will not help you to get supernormal profits on the IPO if the company is already overvalued.

These are the principles to follow when choosing an IPO. To summarize, we are looking for:

  • Companies with a popular product that is in demand.
  • Companies in growing niches.
  • Companies with good growth dynamics in the past.
  • Companies with experienced and successful investors.
  • Companies that are undervalued or fairly valued.

These rules will help you choose truly high-quality IPOs and use all the opportunities of this high-yield tool.

Try investing in IPOs yourself. Remember that you can view the list of available companies right in your Metatrader. Choose stocks that best fit these parameters and participate in your first IPO.

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