IPO Investing - pts to note

extracted from The Sunday Times today..

1. Prospectus. Do checkout the sections on management experience and risks & prospects. Shld have a good grasp of the business as well as understand the valuations of the investments.

2. Financial Ratios. Numbers are important! Look out for share price to earnings ratio, share price versus net asset value per share, dividend policy, gross and net profit margins, returns on equity, and the debt to equity ratio as well as the average growth in sales and profits.

3. Usage of IPO proceeds. Aviod IPOs where large portion of the proceeds is used to clear debts! Red alert if 80% of funds raised used to repay debts.

4. Market sentiment. Business environment at the pt of listing may be contracting or expanding. And that has an impact to the IPO price. History shows that expanding economy perform better..

5. Earning track record. Be wary of firms going IPO after posting a record performance in sales and profits. Pre-IPO accounts were usually presented in best possible light to attract investors. Ask yrself if the financials sustainable in the longer term. One rule of thumb, is to average out the past three-year record to estimate the longer-term profitability.

6. Pricing. Most IPOs priced themselves 7 to 10 times their earnings per share. The lower this ratios, the better the value the share price offers in terms of profits generated. For example, if it's 16, it;s considered expensive.

7. Strategy: Buy and hold or stag? Stagging means selling on the first day of trading. U dont do tat unless u are not confident about the firm.. Meaning dont stag.. Investing really mean buying something that's worth their keeps and selling them later at a much better or expected price.