Are you interested in recent 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 IPOs.
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 financial statement to be released. If the important data points such as Revenue, Net Income, EPS, Free Cash, Assets, and Equity are increasing, this is a sign the share price may increase. If those data points are decreasing, this is a sign the share price may decrease. In most cases, this is exactly what happens. New stocks in the market are working on improving their financials.
- Wait for large institutions to start moving the stock first. If a good financial statement releases and large institutions start investing, that may be a great sign to start investing as well.
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, 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.