Investing

The investor's information to IPOs: Dangers, rewards and methods

June 19, 2025

Disclaimer: This text is for informational functions solely and doesn’t represent a particular product suggestion, or taxation or monetary recommendation and shouldn’t be relied upon as such. Whereas we use cheap endeavours to maintain the knowledge up-to-date, we make no illustration that any info is correct or up-to-date. If you happen to select to utilize the content material on this article, you accomplish that at your individual threat. To the extent permitted by regulation, we don’t assume any duty or legal responsibility arising from or related together with your use or reliance on the content material on our web site. Please verify together with your adviser or accountant to acquire the proper recommendation in your scenario.

An preliminary public providing (IPO) is likely one of the most anticipated occasions in an organization’s progress journey — not only for its founders and management crew, but in addition for retail traders. It’s straightforward to get caught up within the hype, overlooking essential info on the threat of lacking out on what might be a really promising new addition to the market. However most of the time, investing in an IPO with out doing the analysis or timing your entrance accurately results in disappointment. On this article, we focus on when it is sensible to spend money on an IPO, and methods to method IPOs with a strategic mindset. We additionally take a look at some real-world examples of how IPOs have carried out, plus how Sharesight may also help you monitor your IPO efficiency and make smarter investing selections.

What’s an IPO?

An preliminary public providing, also called an IPO, happens when a personal firm gives shares to the general public for the primary time. The principle function of that is to boost capital which can be utilized to fund progress, cut back debt or permit early traders to make a revenue. For retail traders, an IPO represents the chance to get in early on an organization’s journey within the public markets.

The chance and reward of investing in IPOs

Buyers are typically drawn to IPOs as a result of potential of outsized returns. Whereas that is the best-case state of affairs, it’s typically not the truth. Many IPOs underperform of their early months (and even years) as markets transfer past the preliminary hype and reassess the corporate’s true worth. That is typically known as the “IPO pop and drop” impact.

Some real-world examples embody:

Fb (NASDAQ: META) had a shaky IPO in 2012, with technical points and an initially overhyped valuation. The inventory traded flat and below its provide worth for over a 12 months earlier than recovering and occurring to ship sturdy long-term returns.
Uber (NYSE: UBER) debuted in 2019 at $45 per share, however its worth dipped considerably post-IPO, reflecting ongoing uncertainty round profitability and regulatory threat. Solely years later has it proven extra constant efficiency.
Latitude Monetary (ASX: LFS), certainly one of Australia’s largest IPOs lately, listed beneath its anticipated vary in 2021 and has since skilled challenges associated to broader shifts in shopper credit score and lending.
Deliveroo (LSE: ROO) listed within the UK in 2021 however misplaced over 30% of its worth on the primary day of buying and selling, highlighting investor considerations round governance and the gig economic system.

Dos and don’ts of IPO investing

✅ Do your analysis

Earlier than shopping for into an IPO, it’s essential to fastidiously take into account the corporate’s prospectus. Look past the expansion story — perceive the dangers, money movement, margins, aggressive panorama and what the IPO’s income will likely be used for.

It’s additionally really helpful that you just keep watch over whether or not insiders or non-public traders are promoting a good portion of their holdings. Heavy insider promoting may be an indicator that the traders see higher worth in cashing out on their shares than holding long-term.

❌ Don’t fall for the hype

Simply because an organization is high-profile or receives plenty of media hype doesn’t imply it’s an excellent funding. The recognition of the model shouldn’t be essentially an indicator of stable financials or a robust valuation.

✅ Monitor worth stability post-IPO

In lots of circumstances, IPO shares are topic to a lock-up interval (often 90–180 days) throughout which insiders can’t promote. As soon as this era is over, elevated provide may cause costs to drop. Ready 6–18 months post-IPO can typically present a greater image of the corporate’s efficiency as soon as the hype has died down.

❌ Don’t overlook the broader market context

The end result of an IPO relies on extra than simply fundamentals — it’s also largely influenced by broader market situations. In bull markets, IPOs are likely to carry out higher, whereas bearish or risky markets may cause even sturdy corporations to battle. As an example, the previous few years has seen a number of high-profile IPOs postponed or pulled altogether on account of market uncertainty.

✅ Use instruments to trace and monitor

If you happen to’re fascinated by an IPO however you don’t need to bounce in immediately, you may add it to your watchlist. Monitoring how a newly-listed inventory performs over time is an efficient strategy to achieve perception and enter at a extra acceptable valuation level.

How Sharesight helps IPO traders

Sharesight takes the complexity out of IPO investing and portfolio monitoring, with help for 60+ main markets, over 200 world brokers and greater than 100 totally different currencies.

With Sharesight, you may:

Monitor the true efficiency of all of your investments, together with IPOs, with automated dividend monitoring, capital features and foreign money results.
Use the share checker to analyse the historic efficiency of a listed firm. This consists of dividends, company actions and main information that will have influenced worth actions — helpful context for IPOs as soon as they’ve been buying and selling for some time.
Create a watchlist within the Sharesight cell app to watch IPOs you are fascinated by, serving to you monitor their efficiency earlier than committing capital.
Create custom labels to spotlight IPOs in your portfolio, permitting you to trace their progress at a look.
Run the exposure report to see the underlying holdings of any ETFs in your portfolio. This helps decide whether or not there’s any hidden overlap in your portfolio, which may make investing in sure IPOs redundant.
Run the drawdown risk report to guage the risk-adjusted returns of your IPOs in opposition to the remainder of the belongings in your portfolio.

The takeaway

IPOs can provide thrilling alternatives, however they arrive with distinctive dangers — from volatility to overvaluation. The hot button is to keep away from making selections based mostly on hype. Keep rational, do your analysis and lean on instruments like Sharesight that can assist you keep knowledgeable.

By monitoring IPOs and ready for the precise entry level, you may sidestep the noise and deal with long-term worth, regardless of while you resolve to speculate.

If you happen to’re not already utilizing Sharesight, sign up for a free account to begin monitoring your efficiency, plus achieve entry to a collection of reporting instruments that provide the insights it’s essential make smarter funding selections.