Penny stocks are under categorized stocks compared to blue chip as these companies have low capitalization, poor or low financials and have relatively high stock price movement. As these companies are young, they have better chances of growth to multiply and hence stock price return are also very high but on flip side as these companies are small sized, tend to be volatile in terms of price, non liquid in nature. Any adverse event can break down its stock price and investors can end up losing all their money.

The important fundamental to follow while investing into penny stocks is to consider the value, rather price of stock. Penny stocks are meant for long term investment and it must be rather based on value of business rather just price. Know more about concern of the investors here.

Penny Stocks Investment Key Considerations

Below are some key points to keep in mind while investing into penny stocks:

  1. Extensive research: As described above, the investors must consider the value rather than the price of any stock. To evaluate the value, investor must have to do extensive research of company’s financials of not only past and present; but also need to evaluate future growth of business.
  2. Trading Volume History: The historic trading volume of the stock need to be clearly evaluated as most of the penny stocks are ill-liquid & volatile in nature. There are cases when you want to sell your purchase at higher price, there can be lack of buyers.
  3. Manipulations: These penny stocks are more prone to manipulations and as result stock price gets volatile. Investor must stay away from stocks which are more prone to manipulations.
  4. Myths about Penny Stocks: General Myth regarding penny stocks is ‘It can’t go any lower’. When the stock had fallen sharply, it will be traded at its lowest price. Investor must avoid this myth and stick to basics of investing in value rather than price.