Consumers are always on the lookout for the next big thing, and investors in equities are no different. Initial public offerings (IPOs) can be difficult to gauge ahead of their listing and incredibly volatile when they hit the market, but a potentially lucrative investment if done right. But just as with any share, potential buyers need to sort the companies offering good value and with the staying power to thrive in the public market from those where red flags could spell disaster.
A company’s prospectus will give some of the best clues to the underlying business. It should lay out what the company does and what it hopes to do with the money raised. Details about the management team will also be made available. Investors need to feel comfortable with the business they are buying into and should be aware of any factors that could push them to walk away.