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Investment Opportunities

How to Buy IPO Stock

When a private company files to go public, it can be a great opportunity for investors. People get excited about IPOs because it’s the ground floor for what that company is capable of. Even a multi-billion-dollar company has room to grow when it enters the public markets. As soon as it files an S-1 prospectus, people start putting money aside to invest in IPO stocks. For new investors or those who haven’t ever invested in a new company, it’s a good time to learn how to buy IPO stock.

The good news is, buying stock at a company’s initial public offering is easier than you might expect. If you’re already an investor, it simply means putting a new ticker on your radar. But is it good to invest in IPO stock on the first day? That depends on your investing philosophy. No matter how you feel about a new IPO, there’s no disputing the potential it presents.

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Investing in IPO Stock

How do I invest in an IPO stock? If you’re one of the many investors asking this question, know that the answers can be found in the company’s S-1 prospectus. It’s smart to sift through this before investing. Not only will it give you information about the IPO, it’ll tell you everything you need to know about the company itself.

In the S-1 you’ll find important buying information. Namely, what the ticker symbol for the company is, when the IPO date is, and what the initial share price is. With this information, you’re set to buy.

Before you put in a market order to buy shares of a hot new IPO, it’s worth it to consider various strategies. Many investors have different approaches for how to buy IPO stock on first day.

The First-In Investors

First-in IPO investors are the investors who pre-place an order for the stock. They’ll submit a market or limit order for the IPO price before the market opens. Some investors put in a limit order just above the opening price to ensure they don’t overpay.

These investors usually snag IPO shares early, before the action starts. They’re able to get ahead of a potential stock pop, but also put themselves at risk if the IPO share price falls. First-in investors weigh the risks of an IPO and some bet on momentum of an initial public offering to get in at the lower price.

Waiting Until After the Pop

Conservative investors who are still willing to take a risk on an IPO tend to wait until after the “pop.” An IPO pop is the phenomenon that occurs when there’s major buy-in on IPO day and the stock price closes with substantial gains. Following this, it might open the next day slightly lower or on-par with the high. An IPO may debut at $14, shoot up to $30, then open the next day at $24. Or, it may maintain its $30 share price and keep rising.

Many investors wait until after the pop because it can lead to more stability after the excitement of an IPO. First-in investors trying to make a quick buck will have bought and sold, along with others taking small gains from the excitement of IPO day. The day-after price is often a stock’s better floor—a second opportunity for cautious investors to buy in.

Should You Buy an IPO Stock?

Wondering if an IPO investment is right for you? Take a look at your investing philosophy. Does the company you’re looking at fit within your portfolio? Do you believe in the business model? Do you think the initial public offering is well-priced? There’s a lot of due diligence required before investing in an IPO. And, of course, even if you cover your bases, the market’s reaction to an IPO is beyond your control.

IPO stocks present unique risks. But they also offer a rare opportunity for unprecedented reward. Buying shares of a company at what may be the lowest share price possible is something every opportunistic investor should consider. Think of where that company’s share price might be a year from now… or ten years from now. Remember, behemoths like Apple and other landscape-changing companies had to start somewhere.

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