Are you interested in IPO (initial public offer) stocks?
Have you heard the saying, “Just because you can, doesn’t mean you should”? In other words, just because you can go public doesn’t mean you should go public.
Here is why you should be extremely careful with IPO stocks.
Similar to penny stocks, some IPO stocks are essentially businesses that have run out of ways to raise funds. Bank lending has slowed down or completely stopped, venture capitalists have lost interest, and even private equity laughs them out the door. So how do businesses like this raise more capital? The simple answer is to go public. Unfortunately, most retail investors don’t know the difference between a good business and a bad business. A lot of retail investors believe they can “get in early” and make big bucks when in reality, large institutions won’t even pay attention to these stocks and the share price will remain flat or decline.
IPO Stock Rules:
- When a stock goes public at $5 (USD) or less, there is a 99.9% chance the stock will never go higher than $5.
- When a stock goes public between $5 and $10, there is a 90% chance the stock will never go higher than $10.
- When a stock goes public, it’s wise to wait for 2 actions to occur:
- Wait for the next 4 quarterly statements to be released. In other words, you should try to wait at least a year before buying an IPO stock. As investors, we want to see these numbers increase quarter over quarter: Revenue, Net Income, EPS, Free Cash, Assets, and Equity. If those numbers are increasing this may be a sign to buy the stock. If those numbers are decreasing, this is to keep waiting.
- Wait for large institutions to buy the stock first. Let them drive the share price above $10, then consider buying the stock.
Don’t rush into IPOs thinking you’ll make big returns. In most cases, they are a trap. Remember, these businesses are looking to raise money from investors like you.
Don’t give them your money until large institutions start giving them money first.
Also, keep in mind, that if you don’t see an IPO stock in Tykr, it’s because that stock hasn’t released sufficient financial data. Tykr works by pulling 50 data points from the Income Statement, Cash Flow Statement, and Balance Sheet over 5 years. If an IPO stock doesn’t show, it may be a sign the financials are poor which is why the data hasn’t been released.
Be careful with IPOs.