Many investors tend to punt on penny stocks to have gains over a near-to medium term, while some penny stocks may also be based on a long-term return profile depending on the stage the company is at. While investing in nascent stage companies is not without risk, some exposure may help build up gains as per stipulated time frame and portfolio development.

Penny stocks are small micro-cap stocks which may be trading at low price, and to pick the right company among these penny stocks it becomes very critical to assess future growth, operating potential and how you want to shape up the portfolio.

Three Things To Look At When Evaluating Penny Stocks

  • Stock Price
  • Penny stocks are the stocks that trade at a low price generally below $1. Most frequently, these stocks are used for intraday trading as they are highly risky, unreliable and have steep price movements. While in trading in penny stocks, investors have the leverage to take a significant position as they can buy bulk shares at a marginally low price. So, with any rise in stock price, the investor gets to make a good profit in trade play.

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  • Market Capitalization & Share Outstanding
  • To evaluate the quality of the company recognized as penny stock it is important to take market capitalization and shares outstanding into consideration. As we all know, market capitalization is based on two factors that are, shares outstanding and stock price of the company. So, any change in the outstanding number of shares can cast a direct impact on the stock price. Therefore, it is essential for the shareholders to get track of stock splits, any options exercised, or the capital raising through the issuance of shares as any of these actions taken by the company will heavily dilute the ownership percentage of the shareholders along with getting hit by a direct meltdown in the stock price.
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  • Stock Performance Graph
  • Making money is not that easy! Research always play a vital role when it comes to investing. For an investor to identify a spike and buy low for lining their pockets with huge profits, they need to go back and track the trend. It can be done using research tools or through a general analysis of stock performance.  The punters looking for a winning penny stock should stalk the industry news, the stock that has already zoomed up a little or have the potential to set new high and for any management and business related information that will certainly show its impact on the stock exchange.
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