How To Pick Up Potential IPO Stocks To Grow Your Portfolio

An initial public offering (IPO) stock allows investors to get in on the ground floor of companies with promising futures and the potential for rapid growth early on. Stock traders and investors typically choose a mix of high-risk and low-risk stocks to make their portfolio robust, choosing the right IPOs for maximum returns.

Analyzing Stocks

The stock market has thousands of listed companies and dozens of new stocks listed annually across stock exchanges in the US and other countries. When private companies go public, investors require a mix of diligence, analysis, and patience to find the right stocks based on their investment profiles. The TradingView app is a modern tool that investors frequently deploy to find and analyze stocks and find the best conditions for buying and selling them.

Here, we’ll explain some simple and practical tips to help you find the best-fit IPOs based on your investment strategy.

Check on the Company

Deep research into the strength and prospects of a company is a necessary step for intelligent investors. Due diligence involves seeing through any hype to understand the company’s origins, operational state, foundations, and uniqueness. Typical research questions to answer are:

• Is the company a niche/industry disruptor?
• What are the unique qualities that set them apart from others?
• Can the company run smoothly if the founders/owners are absent?
• Who are the backers, and what business model do they use?
• Do they have a competitive advantage?

You should also examine the company’s financial situation; such information is available on platforms like Tradingview, Google Finance, and Yahoo! Finance.

Track Performance and Growth Trajectory

Data is king in investment, and you can’t go wrong looking at the numbers. Meticulously track the company’s financial statements and check the revenue, profitability, margins, and projections. Although it makes a nice story to say investors got in “when no one believed,” it is far easier to sift your portfolio stocks by projecting future realities from current conditions.

An important factor here is the founder’s ambition and sense of realism; they’ll tell you whether they intend to run and push the company to new heights.

Analyze Company Valuation and Pricing

IPOs have an initial price that gives early investors a positional advantage, as the cost of a stock typically increases once the company goes public. Sometimes, however, the initial price may not accurately reflect the company’s value, and once launched, it might hit a correction to the actual value. Analyzing the company’s value and initial price helps you predict the possibility of price corrections and trends.

Check on the Founder and Management

Founders and the management team are the architects and drivers of company growth and success — a company is only as strong as they are. Research the experience and strengths of the owners, founders, and management staff, especially those holding key roles. The complexities of IPO and post-IPO operations can affect a company in different ways, so make sure those at the helm have a track record of benign success before you invest in any IPO.

Follow Legitimate News

Hype is often employed during ICOs. As companies seek investors, news articles emerge on websites, newspapers, and blogs. This is the exact reason for having a few reliable sources of unbiased reporting. Follow legitimate news platforms that report the actual situation without hype so you can make logical conclusions about investing in any ICO. Don’t be a passive stock investor, reading news from just anywhere. Follow the top sources, such as the Wall Street Journal, for IPO and related news.

Research the Underwriter

An underwriter is a financial institution (typically an investment bank) that facilitates IPOs by evaluating the company and the initial offering price and sells and buys securities to investors through their network. Underwriters are also engaged in marketing the IPOs and are crucial to the entire process. Research the underwriter and ensure they have a reputation and history for successful IPOs.

Search the SEC S-1 Forms

The IPO process is rigorous for good reasons: to protect consumers and ensure a fair stock market. The Securities and Exchange Commission (SEC) requires domestic issuers to fill out and return a Form S-1 before they can publicly offer securities. This provides several advantages to investors. First, investors can quickly verify the authenticity of any company doing an IPO and find new IPOs faster. You can access this list on the SEC website.

Use a Reliable Broker

Stock trading is easier and more accessible with modern online brokers. Find a reputable and reliable broker that offers stock instruments. Choose a broker with the infrastructure and support to handle trading volumes during IPOs. Consider other factors, such as industry trends and trading conditions, that may impact trading, and ensure your broker has these covered.

Consider the Lock-Up Period and the Impact on Liquidity

Many companies set a minimum lock-up period after IPOs, during which investors cannot sell their shares. This may impact market liquidity, leading to difficulty in trading the shares. Check the IPO prospectus to understand their requirements before investing. Alternatively, you can trade CFDs on the stock, which is safer if lock-ups apply to the IPO.

Use Diversification Strategy

Remember that the goal is to grow your portfolio and protect your capital. You should not invest all your funds in one IPO. Instead, find a mix of IPOs and established stocks and divide your capital. This maximizes returns and limits the risks associated with stock trading. If you need clarification, consult an investment professional and invest based on your risk tolerance.

Leverage IPOs Today

When predicted correctly, IPOs can position your portfolio for massive gains in the long term. Research the company, founders, management, and financial situation before investing in an IPO. Also, trade with a reliable broker and diversify your portfolio for the best returns.