Investing In IPO Stocks: Everything You Should Know

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2019 is the year of IPOs, with numerous high-profile companies going public in the past few months. The question on many people’s minds is: are these companies worth the investment?

Let’s talk about what IPO stocks are, some of the most recent IPOs and whether or not you’re missing the boat on buying Lyft, Uber or Snapchat.


What is an IPO?

IPO stands for initial public offering.

An IPO takes place when a private company offers shares for sale on the public market for the first time.

While a company is private, the sum of its stock is typically held by the few owners of the company, and that stock is not available for purchase on the stock exchange.

After an IPO, shares of the company’s stock can be bought and sold by the public.

In some cases, IPOs can be very high-profile events. This year has already seen several major companies go public for the first time, with IPOs of 2019 including Pinterest (PINS), Lyft (LYFT), Uber (UBER), Levi Strauss (LEVI), and more.
 

Are IPOs Worth The Investment?

When well-known companies like these become available to purchase on the stock market, many investors quickly start reaching for their wallets.

But, are IPOs really worth investing in, or do they present more risk than reward?

There’s no denying that it’s exciting to see a well-known company, such as the recent IPO Uber, become available to purchase.

In most cases, however, IPOs don’t make good investments – let’s talk about why.

To start, most IPO prices are high out of the gate, and it takes some time for the market to correct their pricing. In addition to having a history of being overpriced, most IPOs also experience a steep downturn after their lock-up period expires.

During an IPO’s lock-up period, company insiders sign an agreement saying that they will not sell their shares in the company until a certain amount of time has passed.

Once this lock-up period is over, though, many company insiders rush to sell their shares, driving the price of the company down in the process.

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