Investing in the stock market is an exciting way to potentially earn some big bucks. Those who aren't familiar with the stock market and investment lingo are basically taking a gamble. There is a lot to learn and it is often overwhelming. Sure, you can take the advice of a broker, but if you really want to make a wise investment you must do a little research of your own. Once you find a stock that sparks your interest, check its float.
Understanding Float
Financial ratios in stock analysis include the outstanding shares and float. A stock's float is the number of shares available for public trading. The float value can change if the company decides to repurchase shares from the market or sell more of its authorized shares internally instead of publicly. For example, if a company has a total of 4 million shares and restricts 1 million for the company, the float is 3 million. A stock with a smaller float is more likely to feel the impact of volume spikes and dips.
Lock-Up Phase
During the lock-up period, inside shareholders are forbidden to sell their shares. Shareholders may be anxious to sell their shares. If insiders continue to hold onto their shares after the lock-up period expires, this can indicate a bright future for the company. Since the shareholders' decisions to hold or sell affects the price of the stock, it's helpful to monitor the lock-up period before investing.
Lock-Up Date's Impact on Price
If you are researching a company that recently went public, check to ensure it is no longer in the lock-up phase. Typically, stocks can't be sold during the first six months after a company's initial public offering. In some cases, the lock-up period is only 90 days. When a stock's lock-up period is about to expire, prices may fall in anticipation of insiders selling their shares and flooding the market. A stock with a small float and positive buzz surrounding the company may actually increase in value at the end of the lock-up period. Supply and demand play a vital role in the stock market.
Finding Lock-Up Information
Lock-up expiration dates are available to the public. You can refer to a company's IPO date to determine whether a stock's float is locked up. Information about publicly owned companies is typically available through the "investor relations" links on their home pages. Websites such as those of Investors Business Daily and the Wall Street Journal provide investment information about popular stocks and their lock-up expiration dates. Edgar Online allows you to enter a stock's symbol or company name to find the lock-up release date.
