How do you find successful penny stocks?


Quick Answer

Ways to find successful penny stocks include studying their share price, company valuation, dilution of shares, the strength of their fundamentals, and by understanding the industry where the company operates. Penny stocks are shares with a price of less than one dollar, notes Investopedia.

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Full Answer

Caution is important when investing in penny stocks, because many companies that offer them do not experience worthwhile increases in the share price, states Investopedia. Study a company's share price in relation to its valuation. A penny stock is not always indicative of an up-and-coming company.

Many businesses dilute their shares through employee stock options, stock splits and to raise funds, explains Investopedia. Some companies that are worth hundreds of millions have penny stocks due to an extremely high number of outstanding shares. Investing in these penny stocks provides stability, but not growth potential.

Consider companies that have lower market capitalization and strong fundamentals, reports Investopedia. Look out for penny stock businesses with ample funds, yearly profits, a solid business structure and an ambitious management team.

Financial crises lead to an increase in penny stock opportunities, with many companies dramatically losing share value, according to Investopedia. Some of these companies go out of business, but the ones that survive gain back most of their share value within a few years. Investors who jump in at the lowest share price benefit enormously.

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