Initial Public Offerings (IPOs)
Conclusion and
Resources
Let's review the basics of an IPO:
- An IPO is the first sale of stock by a
company to the public.
- Broadly speaking, companies are either
private or public. Going public means a company is switching
from private ownership to public ownership.
- Going public raises cash and provides
many benefits for a company.
- The dot-com boom lowered the bar for companies
to do an IPO. Many startups went public without any profits
and little more than a business plan.
- Getting in on a hot IPO is very difficult,
if not impossible.
- The process of underwriting involves raising
money from investors by issuing new securities.
- Companies hire investment banks to underwrite
an IPO.
- The road to an IPO consists mainly of
putting together the formal documents for the regulators and selling
the issue to institutional clients.
- An IPO company is difficult to analyze
since there isn't a lot of historical info.
- Lockup periods prevent insiders from selling
their shares for a certain period of time. The end of the
lockup period can put strong downward pressure on a stock.
- Road shows and red herrings are marketing
events meant to get as much attention as possible.
- A tracking stock is created when a company
spins off one of its divisions into a separate entity through
an IPO.
- Don't consider tracking stocks to be the
same as a normal IPO, as they have limited
shareholder rights.
Also See
"Investing successfully
in an IPO (initial
public offering)" - Disnat Bulletin, October 2003
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