How is the price of the share decided in an IPO?

The Company’s share price at the time of the IPO is determined by the valuation of the Company, divided by the total number of shares at listing.

A few key factors that contribute to forming a company’s valuation include:

  • Comparable companies operating within the same or similar industries and providing a similar product or service
  • Financial track record of the Company and quality of management
  • The Company’s growth prospects beyond the IPO, including what the IPO funds will be used for

Hence, when assessing the price of an IPO it is about the valuation of the Company rather than the price of a share.  

Once listed, the price of the shares is affected by many factors, including economic conditions and general market sentiment.  The movement in the share price is then reflected in a corresponding movement in the Company’s valuation (market capitalisation).

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