How is an IPO valued?

Modified on Mon, 18 Jun 2018 at 12:27 PM

To a certain type of investor, few scenarios sound more satisfying than the idea of getting in on the ground floor of an investment opportunity and then watching said investment rise in price while the latecomers vie for the dwindling and ever more precious table scraps. People want to stake the gold claim on the previously overlooked part of the Klondike, drill the productive wildcat well in the Permian Basin or be Steve Jobs’s and Steve Wozniak’s third partner. Doing this involves slightly more work and more risk than finding a winning lottery ticket on the street, but without an appreciably better chance of success.

Among a few other reasons, this innate covetous desire to move to the front of the line is why the underwriting industry attracts the kind of people that it does – and why initial public offerings (IPOs) attract such attention.

An initial public offering (IPO) is the process by which a private company becomes publicly traded on a stock exchange. Once a company is public, it is owned by the shareholders who purchase the company's stock. Every public corporation in existence had to start trading at some point, which is to say, initiate an IPO.

Source : Investopedia

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