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How Do I Choose the Best IT IPO?

Geri Terzo
Geri Terzo

Technology companies could perform one or more of many services, ranging from software to information technology (IT). Technology as a whole can be a volatile industry, and companies new to the public markets may only have plans for profitability and no clear evidence of that increase yet. In selecting an IT IPO, determine if the company has achieved profitability yet, and if not, make sure there is a clear road map outlined by company executives explaining how the team expects to become profitable.

Industry reports issued by financial analysts can focus on a particular company, an entire industry, or a segment of that industry. Certain reports give an indication of how much money is expected to be devoted to IT over the course of a period of time. If that spending amount is robust, investors could interpret that to mean that profits will follow suit as companies invest in their businesses. This environment may be ideal for investing in an IT IPO because a newly public company can ride the rising tide in the industry.

Woman holding a book
Woman holding a book

Before an IT company lists its shares on a major exchange, it files a formal document with the governing body for the securities industry in its region. Reading through those documents informs you on financial details about these new stocks. Prefer companies that have achieved profitability rather than just companies that expect profits one day. Also, as challenging economic and market times hit every industry, review any plans that an IT company has in place to weather these difficulties.

To pick the best IT IPO, understanding the performance of the industry helps. Technology stocks tend to be quite volatile, meaning that there can be excessive gains or losses in a short period of time. Investors may need to be patient in order to realize the highest possible returns. Certain segments of the technology industry, including telecommunications, can be especially volatile. According to Smart Money, IT stocks in the telecommunications sector can exhibit the most volatility, and investors in an IT IPO should be prepared to handle the risk.

When selecting IT IPO investments, diversify a portfolio with stocks that present different levels of risk. Large IT companies that enter the stock market, which are already known and with a proven business history, may not deliver the fastest-growing profits but can be stable additions that preserve capital. Adding a smaller, lesser known IT IPO may be a riskier investment, but there is more room for this company's profits to grow, and as a result, this stock could enhance a portfolio's returns.

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