Evaluation of Ipo's Attractiveness

An initial public offering is the first time a company makes its stock available to purchase for members of society through a stock exchange like the Dow or Nasdaq. Initial public offerings are attractive investments for some, because they want to catch the stock price when it is low and then sell it quickly for a profit, without having to employ the buy and hold strategy, which can require years of patient waiting. However, many people who try to flip an IPO meaning buying and selling very quickly, often lose their money because they did not conduct careful research into the company and its potential.

Find financial information from the relevant company. Evaluating an initial public offering at a basic level is an exercise in reading financial documents, which generally you can find online. You can search through company financial information using EDGAR, for free. EDGAR is a website managed by the federal government, where companies are required to file their business reports. The main document you are looking for is called a prospectus, and it contains information about the company's debts, revenues, and potential for growth and for its downside.

Do some background research of the company. How profitable is the company? In prospectus you should be able to figure out how profitable the company is, and whether the profit is also a positive trend, in other words, if it is growing, or declining, or staying the same.

Who are the customers? Do they have many customers, and potential for adding more diversity in their customer base, or are they serving one large company, or one group of customers, such as a branch of the federal government, or providing a computer chip sold in one kind of mobile phone?

Who are their competitors, and how many are there? If they are competing against major players already established in business such as Bank of America or Microsoft, what are their chances of succeeding?