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Monday, December 6, 2021

Loss in IPO listing? It is very important to keep these things in mind before investing, you will be in profit

Most of the people invest in IPO without doing the necessary research, due to which they have to bear the loss.

IPO: Recently, due to the listing of IPO and then the fall in the stock, lakhs of investors have suffered, about which there is a lot of discussion in the social. Most of the people invest in IPO without doing the necessary research, due to which they have to bear the loss. Here we have told you some things, which you should check before applying for IPO. Investors should invest on the basis of their own research and not on the basis of rumors and rumors going on in the market. Applying through your research increases your chances of success in investing.

Purpose of IPO

When a company goes public, they have to submit a red herring prospectus (also known as DRHP) to SEBI. It contains all the information about the IPO. Before applying for IPO, investors should understand DRHP properly. What should be noted in DRHP is what the company is planning to do with the money being raised from the IPO. If the main objective of an IPO is to grow and expand your business, then it is generally considered positive from an investment point of view. In addition, paying off the existing debt of the company can also be an objective of the IPO, which is generally not considered good from an investment point of view.

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financial position of the company

Understanding the financial position of the company is important as it tells us about the future prospects of the company. You should check whether the company is making profit or not? If it is a loss making company, when do its promoters expect it to turn profitable? What kind of growth does the company expect in the future? How is the IPO Pricing – Overvalued or Undervalued? Here we have explained how you can find out how the valuation of the company is.

  • EPS Ratio (Shares on Earnings) = Dividend of company’s profit by its outstanding shares
  • P/E Ratio (Price to Earning Ratio) = Divided Share Price by EPS
  • PEG Ratio (Price to Earnings to Growth Ratio) = P/E divided by EPS growth

However, it is quite common to use the P/E ratio to determine the valuation i.e. the higher the P/E ratio, the more overvalued it is. But it cannot be fully understood by the P/E ratio alone. This can be very high due to the past and future growth of the company on which it is valued. On the other hand, the PEG ratio can be considered as a good indicator of the true valuation of the stock. The lower the PEG ratio, the lower is its valuation.

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Understanding business and associated risks

It is important to see the business model of the company. Through DRHP, you get to know what the company does, what are the growth prospects of that business in the long run and what are some of the risks associated with the business. If you do not understand the business of the company, then it is better to avoid investing in that IPO.

Company Management and Background

It is important to do a good research on who the business is being run by. Because they are the ones who take all the important decisions related to the company. You can see things like time spent with that person, past performance, industry experience, etc.

pierce comparison

The company’s financial position, past growth, future prospects etc. should be compared with other companies related to it. Investors should check how other companies have performed in the past and their share price in the long run.

(By Ashish Gupta, a delta-neutral volatility-based option trader)

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Nisha Chawlahttps://www.businesskhabar.com/
She is an expert in Banking, Finance and working with an international bank. She sharing her ideas and knowledge with Business Khabar.
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