Question

How is the stock price set at the time of company formation? Describe the key factors that influence stock price before IPO.

Answer 1

At the time of formation of a company, an investment bank evaluates the present and future performance of the company and the health of the company to determine the value of the share to be sold in the IPO. They can do so, by comparing the company with the IPO of another company and then determining the NPV of the firm. Thus after a thorough discussion between the investment bankers and the company, a final share price is set.

When a stock starts trading the prices of the stock is based on the supply and demand which is determined with the help of both fundamental or technical analysis.

the key factors that influence stock price before IPO is :

• the amount of stocks that are to be sold in the IPO.
• the sentiments of the consumers : how confident are the consumers about investing in the stock.
• the growth potential of the company
• the organizational  structure and leadership of the company.
• the demand for the stocks form the customers.
• the business models and the financials of the company.,