The starting price of shares as issued during an initial public offering.
When a corporation determines that it intends to go public, it must generally work with underwriters in order to determine the ideal initial public offering price for its shares. If priced too high, they will be unattractive to investors and will likely fail to gain momentum. If priced too low, they will not accurately reflect the potential of the investment and may therefore also fail to gain momentum in the marketplace. Much of an IPO’s potential success rests with proper initial public offering pricing.
When underwriters calculate a company’s POP, they take profitability, growth trends, financial assets, investor confidence and a host of other factors into consideration. There is no single “correct” way to determine POP but underwriters approach the task with caution given how consequential this number tends to be.
Over time, the current pricing of a share is often compared to its POP price in order to determine whether it has experienced much growth or has suffered for whatever reason. Comparing current prices to a company’s POP can be helpful to investors, but is also more of an art than a science. After all, any number of factors may influence a share’s price at any given moment in time and should not be compared to a POP without taking context properly into consideration.
Friend One: “Did you know that when Apple first went public, its initial public offering price was $22 per share?”
Friend Two: “Really? How much is a share of Apple worth now?”
Friend One: “Around $200 per share.”
Friend Two: “So, Apple has had some minor successes, huh?”
Friend One: “Yup.”