Penny Stocks are small companies just getting started, or those that have been overlooked or undervalued by investors and can multiply a small investment in a short time frame. But they’ve also been seen as risky, terrible investments, full of obliterated investments and scam artists in fancy cars. Let’s delve into some of the pros and cons of such an investment.
Trading with a low share price
The extremely low prices allow an investor to hold thousands of shares for a relatively small amount of invested capital. With that scale, the gain of just a few cents per share can translate into big percentage returns.
Potential high growth means higher risk
Since the stocks of smaller, less well-known companies can be more volatile than those of larger companies. Such stocks are generally considered to be highly speculative due to several reasons lack of liquidity, how much the asking price exceeds the bid price for an asset and limited following and disclosure.
The big winning companies of tomorrow
There are many excellent companies trading for pennies. They’ve proven management teams, rock-solid financial positions, growing market share, improving financial ratios, and disruptive products or services that are set to dominate an industry.
In some cases, this is because their financial position is a train wreck, their balance sheet is frightening, and their operations are producing large losses. Alternatively, they may have a questionable product in a dying industry with numerous competitors, according to decades among low-priced shares.
The speed of financial gain
Not all penny stocks move quickly in price, but the ones which do can typically make their big price moves within days, not years.
Most investors lose money
This is an unfortunate truth that the majority of investors who take a crack at the penny stock game walk away with less money than they had in the first place.