The recent news about AllHome preparing for IPO brought excitement to investors here in the Philippines. The company plans to do this in September which is going to be the first initial public offering this year in the country. Planning for IPO is not very common here since most companies choose to raise funds through selling bonds. It seems like the event that made one of the world’s biggest loser last 2018 had been a life-changing situation that firms here in the country are scared to list their equities. Now, if you are an investor planning to buy the initial offering of AllHome or other companies, here I share some good pieces of advice on how you can good IPOs in the market.
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One way you can spot if the IPO is good or not is by knowing the use of the proceeds from the offering. The top priority you should look for is the company’s goal to expand. The firm should have a solid plan to branch out or expand their operation. Companies who plan to grow their business are worthy to invest in because you would know that they are serious when it comes to improving their performance. Expansion is a great way to increase the profitability of the business and if the firm doesn’t say anything about expansion when they plan for IPO, don’t fall into the trap.
Knowing that the proceeds will be used for expansion is not enough evidence so you could buy the stocks of a company. Of course, you need to do follow-up research on where they are going to expand, when is the plan to expand, who the target market is, and how they are going to make the new branch efficient and effective. If the plan of the company is to expand after 5 years after they offered the IPO, then it’s common sense that they are going to use the proceeds for something else first. If this is the plan, don’t buy the stocks yet. Look for firms with a serious goal to expand their business as soon as they got the proceed from the sale of IPO.
If during the announcement the company mentioned that the proceed will be utilized for debt repayment alone, do not push through with your decision. Debt repayment is not the answer and it will not increase the profitability of the firm. It’s just a temporary solution to lessen the amount of debt and interest the company is currently paying. Again, expansion should be your top priority, not the brand, not debt repayment. Even if the brand is popular in public, if their IPO plan doesn’t mention about growing their business, then it’s not a good investment at all.