Why companies list on the stock market and what it means for you

Julie Brownlee, Fsp Invest, 25 Sep. 2015

Tags: stock markets, new company listing, why companies list, investing in new companies, penny stocks, investing in shares,

There are around 400 companies listed on the Johannesburg Stock Exchange. This number regularly changes as new companies list and other companies delist.

So why do companies bother listing on the stock market in the first place? And what does this mean for you as an investor?

Let’s take a closer look…

Why companies list on the stock market

The major factor driving companies to list on the stock market is to raise funds. By selling a share in their business to investors, they can use this money to put their strategy into play.

They can use this money to grow their business, investing in key machinery or facilities they need, helping them to achieve their goals.

For example, a company may want to employ a new marketing strategy, buy raw materials or build infrastructure.

What new companies listing on the stock market means for you

What’s exciting about new companies listing on the stock market is the new opportunities they offer investors.

Small companies offer investors a chance to get in at the start of a potential high growth phase for a business. This is where there are plenty of profit opportunities, but there are also companies that won’t reach their potential and fail.

As an investor, you need to root out the great companies from the not so good ones.

Small companies on the stock market are known as penny stocks. These stocks have great profit potential, but they come with higher risks.

If you want to invest in new companies, there are a few things you can do. If you invest straight away, your risks are higher as there’s not much to go on.

The longer you wait, the more evidence you will have that a company is achieving what it set out to do. But by waiting longer, you could miss a lot of upward share price gains.

If you’re interested in investing in shares like this, you have to work out how you want to play it and weigh up the risks involved.

So there you have it. Why companies list on the stock market and what it means for you.

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