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Are UK IPOs a good investment?

03/03/2024

An initial public offering (IPO) is one of various ways for a company to go public for the first time. An IPO means that retail investors can buy shares in the company – and IPOs often happen because that business wants to raise additional funds for future growth. 

The prospect of growth from a newly listed company may appeal to those on the hunt for high returns. Read on to find out how to invest in IPOs, and how they’ve performed in recent years. 

 

How to invest in IPOs

The first step is to find out which companies have upcoming IPOs. The London Stock Exchange keeps a list of these on their website, which you can find here. Some online trading platforms also feature lists of upcoming IPOs. 

Not all IPOs are available to retail investors – and you may find that with those that are, it can be hard to buy the quantity you want as institutional investors may get there first. 

If you do manage to find an IPO you’re interested in, though, stockbrokers and trading platforms can offer you the chance to buy. You’ll need to pay the stock’s full value upfront, and you’ll then be a shareholder in the business. 

 

Should I invest in UK IPOs? 

Investing in IPOs can give you the chance to be a shareholder in a company you have an interest in – and you may even be given a say in how that company is run. 

An IPO means the business has an injection of cash to spend on growth. It’s an option that’s seen as preferable to taking out a business loan or finding credit from another source, which comes with interest implications and debt that needs to be repaid. 

Due to the auditing requirements of public companies, those that go through an IPO can sometimes also be perceived more positively than privately-run firms. 

It is, however, a risky decision. Just a few IPOs will invite retail investors to get involved – which may leave some wondering whether there is a reason why institutional investors haven’t snapped up all of the available shares. 

What’s more, share prices can fluctuate wildly as investors snap up the initial shares before selling them soon after in a bid to make quick gains. 

There have been some real IPO success stories. When Facebook went public in 2012 it raised $16bn in its initial offering alone. An individual who bought $5,000 of shares at the time would have seen their investment grow to $19,000 by 2019.

The current picture, though, isn’t so positive. Just 20 companies were newly listed on the London markets in 2023 – and only nine of these saw a positive return over the course of the year. The average return amongst all 20 was an 8% loss. 

With investors having a weaker appetite for risk in recent years, could this all change once the economy turns around? 

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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