By John Liongale, last updated: 11-24-2020
Most investors are best of, investing in large companies with a market cap of at least 1B, but here is a common-sense formula for analyzing IPO’s in the stock market.
The 10 practical steps :
- How Big Is the Market (in $) for Business and their Products? It dictates the full potential. Like Tesla. Tens of millions of cars are sold each year and cars are highly expensive in comparison to most others things folks buy.
- Who’s Involved in This Business? Did any study for Princeton and Stanford? Or other fancy schools and what did they study? And what credentials and track record do they have in business? [TRULY IMPORTANT!]
- Do the founder own lots of shares in the business and also works as CEO. Remember that this is too, truly important, as times and times again CEO’s that founded the company are passionate about THEIR startup. Examples are Warren Buffett, Jeff Bezos, Phil Knight, Larry Ellison, Elon Musk and Bill Gates.
- Imagine a small cap IPO with lots of potential in 1-3 and now must research what clients the business has already. If the clients aren’t well-known the risk is greater, as such business can deal with worthless shell companies! [PUMP AND DUMP SCHEME]
- Is the products unique and innovative or even life-changing and with mass-market appeal? And is the market young or established? Search for innovation and barley seen-before solutions and HIGHLY VALUABLE SOLUTIONS. But keep in mind, many companies going IPO claim “innovation” while being frauds! So, you must try to smell B.S. by analyzing the product in your head and if claims make sense.
- Analyze strengths and weaknesses of the competition in comparison to the company that you consider investing into.
- How satisfied are employees working for company? Check Glassdoor.com
- I only invest in Tech companies. As it’s something I fully understand. As I understand the scale aspects of tech companies . I don’t understand when a retailer chain with 10 stores, is going to have 200 locations by lets say 2034. But another story with Innovative and highly scalable TECH companies! Acknowledge what happened with Facebook… as now Zuck is worth $70 Billion and just in mid 30s! (only happens in Tech! Right?)
- CEO seem creative personality type or dull when speaking during presentations? Do the CEO sometimes stumble on a few words and is CEO ever smiling? or is CEO colder headed… avoid the cold headed CEO’s, as such leaders are most times in it for a quick buck and they may have “cooked the books”
- Do board members and CEO share plans and goals for the future of the business. Like aiming for a certain yearly growth rate or hit 100 m in revenue by lets say 2024. It’s great when plans are mentioned by leaders but they should be realistic. Avoid companies with CEO’c making bold claims like: “10 years from today we’re going to have a 15% market share in the entire software field…” Bold statements and PUMP and dumpers running the show!
The above formula is for investors who invest into IPO’s in small cap and midcap
Microcap IPO’s should be avoided, unless you’ve done through digging with research. It’s because out of every one great company, another hundred are pump and dump schemes.
Now is the time to begin investing in the stock market. As solid businesses with rock-solid CEO, Management, Product and else always are homeruns through a long-term hold approach. Here is our Top Stock Brokers (link) and more for how to become a stock investor! 🙂