What an IPO is
An initial public offering is the first time a company sells shares to the public. Banks set a price, sell shares to large clients the night before, and trading opens to everyone the next morning.
Why IPOs are hard for individuals
- You usually buy at the open, not the IPO price. Popular deals often open far above the offer price, so the early gain goes to the banks' clients.
- Little history. A few years of public financials, sometimes without profits.
- Hype. Media attention peaks on day one. See Hype and market sentiment.
- Lock-up expiry. Insiders are usually barred from selling for 90 to 180 days. When that ends, extra supply can push the price down.
Judging an IPO with fundamentals
Read the S-1 filing on EDGAR. Look for:
- Revenue growth and whether it is slowing.
- Gross margin and a path to profit.
- How the IPO money will be used: growth, or paying out early owners?
- Share structure: do founders keep voting control?
- Valuation versus listed peers on Price-to-sales ratio (P/S) or P/E ratio (price-to-earnings).
A patient approach
Many investors wait for one or two earnings reports and the lock-up expiry before buying. You give up some upside, but you gain real data and often a better price.
See also
- Hype and market sentiment How hype, headlines and crowd emotion move stock prices away from fundamentals, and simple habits that keep your decisions grounded in the business.
- How to research a company A step-by-step way to research a stock: understand the business, run a SWOT, apply the double-or-halve test, then check the numbers and valuation.
- Market capitalization Market cap is the total value of a company's shares. The size categories, how market cap compares with enterprise value, and market cap versus potential.
Pages that link here: What is a stock?
Last updated September 30, 2026. Education only, not investment advice.