Well, this time, it is like the rain of IPOs. You all know that most of companies bring IPOs when the bull run is going on and this time you have seen one after the other IPOs. But when you apply for IPOs, you get allotment in those IPOs where you do not get listing gain. You get a listing on discount, which means you get a loss. And the IPOs in which you get a good listing gain, there you get 1 lot or 2 lots. Now where the listing gains getting good, then you think that I apply every time.
But yes, this is a fact that if you apply every time, then you will get allotment in those IPOs where people have not subscribed much or you are going to lose. In this blog, I am also going to tell you how you will get free shares of Google.. So what to do now, how to avoid loss next time. See, I give you information on the major Potshot are coming. Like I gave you information on Nike, Tomato, and Policy Bazaar. In fact, I gave you information about Pat.
In Tomato, Nike and Policy Bazaar, I told you that you can apply and you will get great benefits in it. But in this blog, I am going to give you 5 checklists with which you can take this decision yourself that I want to invest in an IPO or not. In fact, it is not just for IPO. You are going to invest in any stock. The checklist will tell you will help you a lot. Your vision will be clear that your profit issuer shot and not loss. This is our vision; this is our goal. So we will achieve it together. Now we will move ahead and cover all the points of the checklist. First of all, whenever an IPO is coming, before investing in an IPO, not just before seeing what is the gray market premium or what is the subscription rate, first come to the objective.
A company is coming with an IPO, initial public offering, means for the first time that company is going to be listed in the share market. It is going to give its shares to the public. So why does it want to take money from the public? What is its objective? What does it want? There can be many reasons. It may be that the company has a lot of debt from the beginning and itis bringing its IPO to the market to pay off its debt. It may be that the company wants to do expansion.
The company wants us to put more factories, and spend on R&D. Money is needed for that, which is good. This debt option is not good that the company is already in debt and is bringing an IPO tithe market. But if the company is asking for money for expansion, then it is good. Let’s take one more example. Let’s assume that the early investors who had invested in the company before, to exit, means we will take out our shares. They will give shares on offer for sale. People will buy those shares. Son, we have money and you have seen that it has happened in the last few IPOs.
Investors have been harmed in this. So if the company’s objectives that the initial investors are taking their money and leaving, then there is a high chance of you being harmed. So here you have to understand that the debt, if the company is taking it for that, it is not good. If it is taking for expansion, it is good. And if only early investors are leaving, then again the retail investors can be harmed. But don’t go to just one point of the checklist. There are many things to understand. So when you get more clarity on the objective, let’s talk about it for a minute.
You must have always seen that Red Herring Prospectus, every company submits to SEBI. Why does it do that? Everything is mentioned in it. We are going to talk about the company’s objectives and financials. So you are investing money. So before investing money, you have to read the company’s Red Herring Prospectus. Now if you read the company’s Red Herring Prospectus, you will get a lot of clarity. When you get that clarity, you have to check a few more things in that clarity.
Let’s talk about what they are. You are reading the Red Herring Prospectus, then you will be able to see the company’s financials in it. What are the things you have to see, let’s talk about it? What is the revenue of the company in the last 3 years, what are the profits and assets?
This means how much revenue the company is generating every year and whether that revenue is increasing every year or not. The profit company is generating and whether it is increasing every year or not. If the company is making loss, then we will discuss this topic. So you have seen that a lot of companies have come, which are loss-making, for example, Pat. So you saw that Policy Bazaar. Now if there is loss making here, then you need to understand a lot of things in it.
So you had to understand one thing objectively. You saw revenue, the company is making profit every year because what is the main goal of every business that we will generate profit. If the business is not generating profit, then you have to see how long it will reach the situation of generating profit. So you understood this and the company’s assets are increasing every year or not. You have to understand these three things and at least take the data of the last 3 years.
If you are not able to see all these three things in the last3 years and you are not seeing a satisfactory response, then it is your money. It is your decision whether you have to invest or not. Now there is a big thing in financials. I will go step by step. You will understand everything. We will talk about EPS first. PS means Earning Per Share. What is the company’s? If you go step by step, then you will understand. Now how will you calculate the company’s Earning Per Share? It is very easy. How much is the company’s profit and how many outstanding shares does the company have?
So divide the profit by outstanding shares. Now I will give you an example. Assume that the company’s profits 20 crore and the outstanding shares that the company has are 2 crores. So how much is the company’s Earning Per Share? It is 10. You calculated₹ 10. EPS Earning Per Share. Now when you will know the Earning Per Share, then what can you calculate? You get all the information, but you need to know how it comes out. When you have EPS, for example, we took the company, then EPS of 10 came, Earning Per Share came, then you can get these ratios from it.
Do you remember PE ratio? I taught you in Fundamental Analysis. So when we are talking about PE ratio, what is PE ratio? Profit to Earning Ratio. What is the share price of the company and what is its earning? So knowhow do we get PE? What is the share price of the company? Assume that the share price of the company is 100and the EPS of the company, you calculated for example, is ₹10. So how much is these ratios here? Your PE ratio is 10. Now for example, the price of the share is not₹ 100, it is 1000.
You have seen many companies; it is listed in the share market. Someone has a share of 100, someone has a share of 1, someone has a share of 1000, someone has a share of 10,000. So here we have taken the example that the share price of a company is 10 and the earning per share is 10. So these ratio is 100.Now if a company’s PE ratio is 100 and a company’s PE ratio is10, in the same segment, doing the same business, the revenue is the same, the profits the same, you assume, then which company’s share should you invest in? I am asking you a question, it is very easy.
In the company’s share, whose PE ratio is less, the less the PE ratio, the better it is for you, but just looking at the PE ratio, investment is not good and many times you see, you ask that the PE ratio is negative. If the PE ratios negative, then whether you invest or not, now understand the negative. I am saying that the PE ratio should be less. Now your question, you asked in the comments, so I am giving the answer that the PE ratios negative. When will the PE ratio be negative?
When the earning per share is negative, means the company will book a loss, then the PE ratio will go negative, then the matter ends there. You should avoid such companies where the PE ratio is negative. Now I will discuss in the next blog, so keep them in mind. There are many such companies that make losses, but still when you talk about IPOs, in fact, if you talk about their share, we are buying, then people want to buy it, so the profit can be there. So demand and supply play Avery big role.
So now if you have removed the PE ratio, then after that comes the PEG ratio. Now it is not necessary that we are investing only on the PE ratio. What is better than the PE ratio? You see the price to earning to growth ratio and how can you calculate it? By the way, all the data is available on the internet, but still I tell you how you calculate the PEG ratio. Price to earnings, which is your ratio, divided by PE is growth. When I am giving you this formula, you should know it.
You should have all the information. So the companies that you are looking at only PE, it is not necessary that we look at the valuation of that company only according to PE. Or you will see that it is overvalued or undervalued. You should also look at its PEG ratio. How will the company’s growth be in the future? So when you will know this, then you will be able to take better decisions that you have to invest in any share or IPO or not. Now let’s move forward. Now let’s talk about company management.
Now see why I am talking about company management, because today any business is running, and the people who run that business are the people. The company is nothing. The company is a group of people. People are running the company. So this is my personal opinion. It is my opinion, whether you believe it or not, I am saying that it is better to invest money on a person than not to invest money on a business. Who’s that person? As an example, when we talked about NICA, we also talked about Falguni Nair. So definitely in the management of the company, you need to know about these and the top leading players of the company. Let me take one more example of Tesla.
What do you think people invested in Tesla? People invested money on Elon Musk. Now Tesla is performing, but its share price is running faster than that. Why is it running? Because it is running on because Elon Musk has become such a person in himself that everyone in the world knows at today’s date. So here we have understood that it is good to invest in US stocks and you are investing in any company. If you are investing in Facebook, then who are you looking at?
You are looking at Mark Zuckerberg. Management is very important. In any company, we are talking about Amazon, who is the owner of Amazon, Jeff Bezos, we know the name, and the person who is taking the company up, so if you are investing in any company, you should definitely understand who is their management, who are the people who are running the company and who are running the company, if you think that those people are the ones who will take this business forward, then the profit will be yours if you are investing in those companies.
Now for IPO, you have understood this point that it is important to understand company management and for share investing, it is very important for you to understand management. Next is peer comparison. What does peer comparison mean? If you are investing in a company, let’s say it is a real estate company, you have seen the PE ratio, you have checked the financials, when the IPO was coming, you also understood what are its objectives. After that, you have to check what other companies are there that are similar, that is, it has a peer.
Similarly, a pharma company is coming or you think that the company is coming with its IPO, you are investing in its shares, then you must check the peer comparison that how the players working with it are doing. So you will get an idea that whether you want to invest in that company or not. You will also find out about the industry, how the overall industry is performing.
I Fit is a cement company, then it is ACC cement, then you will also find out that you need to study Ultra Tech. When you are investing in Indigo Paints, then you have to see how Asian Paints is doing, how are its financials, and how is its growth, you also find out a lot about the sector when you understand peer comparison.
And finally, I will discuss the last point. Before you invest in the IPO or any stock, it is very important to understand this model because we have to invest money where we understand business. If we do not understand business, we do not have to invest money. Here I have dialogue, I say only invest in what you understand. Do not invest in anything what you do not understand. Invest money in only what you understand. Do not invest money in what you do not understand.
Warren Buffet also said this. When the dot-com bubble came, everyone was crazy about dot-com. Everyone was investing in websites. The company that put a domain in front of its name, people were investing money there. So now at that time Warren Buffet said that he did not care so much when the dot-com bubble burst because he did not invest money because until then he did not understand that industry, he did not understand that business. So he said that the money I have, I have already invested in those places where understand things. Why should I invest money in things that I do not understand and the same thing is for you, you also have limited money.
Invest money in what you understand. If you invest money in the business you understand well, then you will definitely benefit. If you invest money in every business, then so much diversification is not right for you. So now I think I have given you a lot of information today. I will revise all five points again so that next time before your investment, these five things will remain in your mind. So we discussed the fifth point that you should understand the business model of the company. If you do not understand the business model, then do not invest money.
We discussed the fourth point that you have to do peer comparison. If you are investing money in any company, then definitely search the company around it, how it is performing and you talked about it. It is very important to understand the company management. Who is running the company because ultimately you are investing money on people. We talked about the company’s financials, in which we understood some models. In which we talked that you have to understand the PGE ratio, you have to understand the PE ratio and you have to understand EPS, earning per share. So you have understood these things. Along with this, we talked about the financials and revenue, profit and assets.
You have to keep in mind that you have to study the data of the last three years that it is increasing, the growth is increasing in the company. We talked about the objective of the company if it is bringing IPO and you have to see in that objective that why the company is bringing IPO, for debt, for expansion or for the early investors and you have to read the company’s red herring prospectus, which you can easily find on the internet. Now, if you remember the things you have understood today for investment, then there is a very low chance of your loss and there is a very high chance of making profit.
