Shares: What is an IPO

There are a number of ways to buy shares, including when they first float.

How investing in shares works

A share is part ownership in a company. Companies issue shares to raise money. After that, investors can buy and sell those shares to and from each other.

When you own shares, you own a small part of the company. As a shareholder, you can get dividends and other benefits.

If you're new to shares, visit the Australian Securities Exchange (ASX) investor education hub for information and online seminars.

Buying shares through an IPO

‘IPO’ stands for ‘initial public offering’. Companies may offer new shares to the market as a way of raising capital. This is called a 'float' or an 'initial public offering' (IPO).

2026 is shaping up to be a year of some significant IPOs, so here are some tips on what to consider before you invest.

To decide whether to invest in an IPO, read the prospectus. A prospectus contains details about the company and the float. It tells you:

• features of the shares (securities) on offer, how many are for sale, how to apply to buy
• company information, its operations and financial position
• risks associated with the offer

A prospectus must be lodged with ASIC. To check this, see ASIC's Offer Notice Board.

A prospectus checklist

Things to look for in a prospectus:

check_box Sector — How well do you understand the sector the company operates in?

check_box Competitors — Who are the company's competitors? How does it compare to others in the sector?

check_box Financial prospects — Look at the financial statements and cash flow. Is it generating revenue and making a profit? If not, why? Many companies do not make a profit during their start-up phase. If this is the case, when does it expect to make a profit?

check_box Profit estimate — Are the assumptions underlying the profit estimates reasonable? For example, demand for goods or services produced, or assumed economic conditions. What if they vary? Consider your investment time frame and how this would affect you.

check_box Relative value — What is the price-earnings ratio (P/E ratio) of the company? How does this compare to its competitors? The P/E ratio will help you assess whether the IPO is a fair price. Generally, a higher P/E ratio means investors expect higher growth. During times of higher market volatility, such as COVID-19, past earnings may not be indicative of future earnings. It can also be more difficult to forecast future earnings. So the P/E ratio may not be a reliable indicator. Look at other metrics.

check_box Dividends — Does the company intend to pay a dividend? If so, when?

check_box Purpose of float — How will the company use the funds raised through the IPO?

check_box Licences — Does the company have all the necessary licences and permits to operate? If not, when?

check_box Directors — Are the company directors and managers paid what you would expect for the size and industry? Do they have appropriate skills and experience? Check they are not on ASIC's banned and disqualified register.

check_box Advisers — How much are independent advisers paid as a percentage of funds raised by the IPO? If the fees exceed 10%, consider whether this is reasonable. The more money paid to advisers, the less available to the company.

check_box Risks — Is the risk disclosure section detailed and specific to the company? Or does it use vague language and generalised disclosure (such as saying the share price may go down)? This could mean the company is not telling you everything you need to know.

If there's anything in the prospectus you don't understand or are unsure about, talk to a broker or financial adviser before you invest.

Selling shares

Once a company has floated, you buy and sell shares on the market.

If you hold shares directly, you can sell them by placing a trade online or contacting your broker. You pay a fee each time you make a trade.

Learn more about selling shares.

Finding the right investments can be challenging. If you need some help to build a diversified portfolio, talk to a financial adviser.