Understanding The Myth Of IPO Stocks Always Soaring

Screen display of stock market movements at the Indonesia Stock Exchange Building, Jakarta. Care must be taken before deciding to give IPO shares. (ANTARA/Reno Esnir)

JAKARTA - There is confidence from investors that the shares of issuers that have just entered the stock exchange will immediately soar. This makes Initial Public Offering (IPO) shares the target of investors. Even though there are stocks that immediately fell below their initial price, such as Bukalapak (BUKA) shares which have fallen 68.47 percent since the IPO.

The queue of prospective issuers who will enter the stock exchange has been long. According to data from the Indonesia Stock Exchange, until the second week of March 2022, there were already 23 companies lining up to release their shares to the public.

IPO is the process of selling the first common stock of a company to investors. It can be said that this is the beginning of the company officially taking the floor in the capital market.

The stock price before the IPO is generally lower than the one offered after, which is called underpricing. This makes an issuer the target of a number of investors, especially if the main investor is a person or a large corporation.

IPO shares are generally offered when market conditions are trending up or bullish. There is a possibility that investors will earn 10 to 30 percent on the first day of trading opening.

PT Gojek Tokopedia (GoTo) will start listing on the stock exchange on April 11, 2022. (GoTo)

Of the new shares on the exchange that entered early 2022, only a small percentage fell below the initial price. But there are stocks that immediately fell when they debuted on the stock exchange.

The shares of PT Adaro Minerals Indonesia Tbk, for example, have continued to shine since they first entered the stock exchange. Adaro Minerals listed its initial shares on January 3, 2022, and as of March 28, it rose 1.595 percent to IDR 1.695 per share.

In addition, the share price of PT Net Visi Media Tbk has also increased 72.29 percent from its initial price. Shares of PT Semacom Integrated Tbk rose 39.88 percent since it was recorded on January 10 last.

By buying IPO shares, investors have the potential to get maximum cash. The reason is that the IPO stock price is stable so that it is very possible to achieve Auto Reject Top (ARA), or the highest stock price, and generate substantial profits for investors.

Before buying IPO shares, it is important to know the purpose of releasing the shares to the public. There are issuers that release their shares to the public for business expansion, some with the aim of paying off debt. Investors just have to choose.

Advantages of Buying IPO Shares

There are several advantages that can be obtained from buying IPO shares.

First, is the potential profit for investors on a prime day. The movement of IPO shares in the early days when the initial listing or listing on the stock exchange has the potential to increase significantly. As it is known that the auto-reject or ARA limit of IPO shares can reach 2 times the normal auto-reject limit. Therefore, the profit potential is also quite high.

Generally, investors who have IPO shares will hold it for a few days, because of the potential for prices that tend to skyrocket in a short time during listing on the stock exchange. When it has gone up high investors should sell it.

It should be noted that this potential gain is still a possibility. This is not a certainty that the IPO shares will rise to ARA on the first day of listing on the stock exchange.

Stock trading illustration. (Unsplash)

Second, the share price has been fixed. When investors buy shares in an IPO, the price is set. Therefore, on the first day of listing, there is no need to buy shares with prices that have gone up.

Third, the potential to get a company with good fundamentals. Investors have the opportunity to get issuers that have good company fundamentals, with long-term business. Later, the share price can increase many times from the initial offering price.

Fourth, stocks can be sold quickly. IPO shares owned by investors can be sold at any time. When LinkedIn made its initial listing on the Indonesia Stock Exchange (IDX), its value skyrocketed from USD 45 to USD 94.25 on the same day. In just one day, investors can sell IPO shares and get double the profit.

Beginner Investor

It is very important for novice investors to select what IPO shares to buy. The general parameter is the issuer's financial performance. Then read the prospectus provided by the prospective issuer. Usually, the securities that are the guarantor provide a shorter and easier-to-understand exposure. If you have time, follow the public expose online.

Understand the stock, of course, by studying and understanding the stock and how the stock mechanism can be run.

Choose a securities company, determine the securities company that will help you to become an intermediary when investing in stocks. Determine a trusted securities company.

The securities company has a role as an intermediary for you to buy and sell shares, and will assist in opening a stock account on the IDX.

Weaknesses of IPO Shares

Competition to get IPO shares is quite tight, if the shares are in great demand by potential investors, there will be an initial share allotment system. Investors will likely only get a 10 percent allotment of orders.

The risk is that the remaining funds must be allowed to stay for a few days in securities before being returned, this becomes a shortfall in the IPO.

Indonesia Stock Exchange Building in Jakarta. (Wikipedia)

Another thing is that the shares of issuers that are going to IPO sometimes do not have a long business track, because the age of the company is still under 10 years.

For example, a new property company that will release its shares to the public and plans to use fresh funds from the IPO for development. It turns out that the property market has not grown due to the pandemic, resulting in its share price continuing to drop to IDR 50 per share

We recommend that you need foresight before choosing IPO shares. The myth that IPO shares will fly high also needs to be investigated more deeply, because conditions are not always like that. It takes foresight, patience, and maturity so as not to be wrong in investing.