Updated: March 30, 2017
One exciting part of investing in the stock market is buying IPO stocks. An initial public offering (IPO) is when the shares or stock of a private company is offered to the public for the first time.
Years ago, Puregold was just a low-key supermarket chain in the country. But after its IPO in October 2011, the company began putting up stores everywhere to become a retail giant that it is today. Fortunately, because it is now a public company, you can buy shares of Puregold at the Philippine Stock Exchange, and proudly call yourself as part-owner of this multibillion-peso company.
Buying IPO stocks has always been attractive to both traders and investors in the stock market. For traders, they want to earn from the stock price rally that usually follows a company’s listing. And for investors, it is a chance to be part of a company’s historic beginnings of massive growth, thanks to the influx of cash coming from its IPO.
Each year, a number of companies go public in the Philippine Stock Exchange. There were four companies that did an IPO back in 2016. And this year, several more are planning to get listed in the PSE.
If you’re among those who are looking into investing on an IPO stock this 2017, then here are three valuable tips you should remember.
Tip #1: Have a plan.
Before buying any stock, you should always define your financial goals. More importantly, have a plan that you will follow.
Specifically, are you planning to trade the stock in the short or medium-term? Or are you looking to buy and hold the stock for the long-term?
Defining such objectives will dictate your stock market strategy. It will also serve as your guide in deciding if you should buy a particular IPO stock.
For example, if you’re looking to invest for the long-term, then you can buy into the IPO of a company that’s part of a growing industry, with good earnings, credible management, superior and unique products, and a strong balance sheet.
Tip #2: Research about the company.
In the age of social media, a lot of people have lost money in the stock market because they succumbed to herd mentality and fell into hyped advice.
Be cautious of those whose stock market tip you follow. Some of them could be traders looking to profit from clueless people who buy stocks mindlessly.
Study the prospectus of a company that’s about to do an IPO. Look at its revenue and income growth. Is it doing well or just barely surviving?
More importantly, know how the proceeds from the IPO will be used. Will it be used to expand the company’s operations or will it be used to pay long-standing debts?
IPO Analysis: AudioWav Media (WAV)
One company that’s looking forward to do an IPO this year is WAV or AudioWav Media Inc. You may not have heard about them, but this tech company is a pioneer in multi-sensory branding that earned revenues of more than P127 million in 2016 (Source).
Go inside a Mercury Drug store and the music playlist you hear is one that they designed. Go inside a Power Mac Center and you’ll notice a distinct scent common to all their stores. Their other clients include Ayala Malls, Robinsons Malls, and other top retail and hospitality establishments in the country.
Moreover, the company has its own R&D, which helps them to innovate faster. Additionally, the proprietory devices they create makes sure that they won’t be easily copied by others, so they can stay ahead of competition.
Interestingly, according to a GMA news report, a Singaporean equity firm has offered AudioWav Media a sum of $50 million. But instead of accepting the offer, they’re hoping to get the same amount through an IPO, which will then allow them to expand their business across several countries in the Asia Pacific.
At present, there are only a few tech-centric companies in the Philippines. But if the growth of the local tech startup community is any indication of the future, then I’d say investing in the Philippine technology sector holds great potential.
Well, this is just my initial research. And so far, the signs are looking good for AudioWav Media, making it a good candidate for an IPO stock to buy when it finally lists in the Philippine Stock Exchange.
Anyway, the lesson here is to get as much information as you can from credible sources. Work on getting yourself a copy of the prospectus, and base your decision on facts; instead of simply listening to crowdsourced opinion from social media.
Final Tip #3: Avoid the volatility of the first day of listing.
Lastly, if you were not able to get allocation on the initial offering from your stock broker, and you really want to buy stocks of a newly-listed company, then avoid buying shares during the first few days of listing.
This period is typically volatile. Historically, IPOs will trade higher than their offering price during this time. Then short-term traders will do profit-taking after a few days.
When the IPO stock recovers after this correction, then that’s the time you should buy. This will give you the chance to be in a good position before the stock resumes it rally.
And that’s it! I hope you found the stock market tips above useful.
How about you? Have you ever bought an IPO stock? What was your experience? Do share more tips and the lessons you’ve learned below in the comments section. Thank you.