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Evaluating a Potential IPO - Part 2 |
by John Jagerson
While new initial stock offerings do not always turn into investor profits IPOs in general can be very exciting and aggressive traders are usually quite interested in evaluating new firms. Looking at a potential investment with the same critical eye you would use to evaluate any other stock purchase will increase your chances of investing in an IPO that meets your normal investing requirements.
You will find through the case study we are evaluating in this article series that almost all the fundamental information you would normally want to see is available within the initial filings with the SEC. In this case study the data is even more interesting because it is one of the first detailed glimpses into the operations and profitability of a forex dealer. Here are some of the examples of some of the data we found.
To see the first article in this series - Click here.
To see the third article in this series - Click here.
1. The firm has net profit margins of approximately 30%. Be careful when reading financial statements within a new S1 form. They often contain "non-cash" cleanup items that can distort a firms actual profitability. If you need help understanding the financial statements, click here.
2. The company makes revenue mostly from trading revenue (including the bid/ask spread) but also earns interest on customer and firm deposits.
3. Gain internalizes 95% of all order flow. This is a much-debated number among forex traders so it is interesting to see the actual figure in black and white.
4. The primary driver of revenue is transaction volume. This should help traders understand why dealers focus so much on short term trading strategies, commentary and education.
The data we evaluated in this video was the firm's financial performance. We will be digging into the firm's operations, projections and risks in the next video.
Next: How to Profit from Falling or Rising Home Prices
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