What is an IPO and how to research one

An initial public offering (IPO) is the first time a private company sells its shares to the public and lists them on a stock exchange such as the NYSE or Nasdaq. After the IPO, anyone with a brokerage account can buy or sell the shares on the market.

How an IPO works

1. Registration. The company files a registration statement, usually Form S-1 (Form F-1 for many foreign companies), with the SEC. It includes the prospectus.
2. Underwriting. Investment banks help set the share count and a price range, and market the offering to institutional investors (the “roadshow”).
3. Pricing. The final offer price is usually set the evening before trading starts.
4. First trade. Shares begin trading on the exchange. The opening price can be very different from the offer price.

Some companies go public in other ways, such as a direct listing or a merger with a SPAC (special purpose acquisition company).

How to research an IPO

• Read the prospectus. The S-1 on SEC.gov covers the business, financial statements, risk factors, how the money raised will be used, and who owns the shares.
• Check the financial history. Look at revenue growth, losses or profits, and cash flow over the years shown.
• Read the risk factors. New public companies often list many risks; they are worth reading in full.
• Understand ownership and share classes. Some companies have dual-class shares that give founders more voting power.
• Note the lock-up period. Insiders are often restricted from selling for a period, commonly around 180 days. When it ends, more shares can come onto the market.
• Compare with listed peers. Size and valuation only mean something next to similar public companies.

Things to keep in mind

Newly listed stocks have a short trading history and can move sharply. Individual investors usually cannot buy at the offer price; most buy once trading begins. StockScroll’s IPOs tab lists upcoming and recent offerings when the live feed returns them.

See also SEC filings lookup, compare stocks side by side, and how to research a stock.

Educational only. This article explains general concepts. It is not investment, tax, or legal advice and is not a recommendation to buy or sell any security. Check primary sources such as SEC.gov before making decisions.

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