Understand What an IPO Is Before Investing
The Indonesian capital market remains a key alternative for corporate funding while providing more investment options for the public. As of the end of August 2024, the IDX recorded that seven companies have officially listed their shares on the Exchange, raising a total of Rp2.16 trillion, with seven more companies currently in the IPO pipeline.
The Head of the IDX Listed Company Development Division, Listyorini Dian Pratiwi, believes that the increasing number and scale of companies conducting IPOs indicates that the Indonesian capital market remains an attractive funding choice for the business world. “The growing number of listed companies also provides more investment alternatives for the public as a means of portfolio diversification,” she stated.
Rising IPO activity has also captured investor attention. Whenever a company lists on the IDX, market enthusiasm typically increases, and many stocks see price increases on their first day of trading. This condition often leads to the assumption that investing in IPO stocks is always profitable.
However, price increases during early trading do not necessarily reflect a company’s fundamental value or guarantee long-term stock performance. Once listed on the Exchange, share prices move according to supply and demand mechanisms and are influenced by various factors, including company performance, industry conditions, the economy, and market sentiment. Therefore, investment decisions should not be based solely on market euphoria, but through thorough analysis to align with each investor’s investment objectives and risk profile.
Listyorini also believes that an IPO should not be viewed merely as a moment on the first day of trading or the end of a company’s journey. According to her, an IPO is the starting point for a company’s growth in the Indonesian capital market. “After conducting an IPO, companies are expected to undertake further corporate actions in the following years, grow alongside the Indonesian capital market, and utilise the capital market as a ‘house of growth’ to support sustainable business development,” she explained.
Here is what needs to be considered before buying IPO shares:
- Study the company’s prospectus
Listyorini suggests that the first step is to study the company’s prospectus. This document is the primary source of information containing the company profile, business sector, financial condition, business strategy, use of IPO proceeds, and various potential risks. By understanding this information, investors can gain a more complete picture of the company’s quality and future business prospects. Investors also need to scrutinise how the IPO proceeds will be used, whether for business expansion, capital expenditure, debt repayment, or other needs according to the company’s plan. In addition to understanding the use of funds stated in the prospectus, post-listing, investors must continue to monitor the realisation of these funds through the Report on the Realisation of Use of Funds (LRPD), as regulated by OJK Regulation No. 40 of 2025 regarding the Use of Proceeds from Public Offerings.
- Understand the company’s business model
In addition to reading the prospectus, investors need to understand how the company operates and generates revenue. Key aspects to note include target markets, revenue sources, competitive advantages, and the company’s strategy for business development. Equally important is assessing the prospects of the industry in which the company operates. Companies with clear business models in industries with growth opportunities may have room to expand, though risks and uncertainties must still be considered.
Scrutinise stock valuation and business prospects, not just the stock price he price offered in an IPO cannot be the sole basis for determining whether a stock is cheap or expensive. Investors need to view the price in the context of the company’s value and fundamentals. One approach is to compare the company’s valuation with other listed companies that have similar characteristics or operate in the same sector. Investors can consider several ratios, such as the Price to Earnings Ratio (PER) or Price to Book Value (PBV), while paying attention to the specific characteristics and business prospects of each company. “The main goal in assessing IPO stocks is not merely to find cheap stocks, but to ensure that the offered price is proportionate to the fundamentals and future growth potential of the company,” explained Listyorini.
Recognise various investment risks
IPO stocks still carry investment risks. As companies newly entering the capital market, the performance of listed companies can be influenced by various factors, both internal to the company and from broader economic and industry conditions. Furthermore, share prices after listing on the Exchange can be volatile, following market supply and demand mechanisms. Therefore, investors need to have realistic expectations and avoid making decisions based solely on short-term price movements. Rather than focusing on the euphoria when stocks begin trading, investors can utilise the IPO momentum to build a higher-quality portfolio through comprehensive analysis. By reading the prospectus, understanding the business model, assessing valuation, and recognising existing risks, investors can make more rational and measured investment decisions.