How To Effectively Pick Out The Best Rated Penny Stocks On The Market
Before investing in Penny Stocks, a wise investor should take note of a number of key factors that could have an effect on both the way these stocks trade, and also the corresponding risks. With the share price of a penny stock being so low, large numbers of investors are drawn in who have goals of buying the correct stock for cents and seeing it turn into a blue-chip stock in years to come. Before entering the market, it is important to inform oneself of factors that make the best penny stocks on the market.
Share Price And Valuation
A common mistake that investors make when considering entering the penny stock market is that they think they are affordable. This is due to inexperienced investors believing the idea that getting thousands of shares of a smaller company as opposed to three or four from a major company is a better investment.
This way of thinking might seem reasonable to an onlooker since a $1000 investment will buy ten thousand shares in a company that trades at $0.10, but only ten shares in a company that trades at say $100. An essential piece of information that is often overlooked at this stage are the amount of shares that are currently outstanding; outstanding shares refer to the shares of a corporation or financial asset that have been purchased by investors and are held by them.
Dilution
When trading penny stocks, something to consider is the possibility of dilution. Share dilution can happen when the number of shares outstanding expand out of control. This can be a result of many factors, such as employees being offered better share prices and purchasing them, as well as the issuing if shares to raise capitals. If a company releases more shares in order to raise capitals, which many small companies may do, it can often dilute the ownership percentage held by other investors.
Spotting A Winner
The large majority of companies that trade with share prices of less than a dollar have small market shares, but not always. When investing, most particularly in penny stocks, it is important to consider the strength of the company’s basics.You can find more about this on https://www.timothysykes.com/penny-stocks/. For example, whether or not the company is profitable, whether or not if it will be able to enter profit using its current business structure, and if they are reliant on the issuing of new shares in order to raise capital. If someone informs themselves properly of an organisation, its potential, and its current state, there are many excellent opportunities to be found.
Industry Sector
One should consider the fact that within some sectors, stocks on offer for under a dollar are more common, for example heaving industries such as mining.
In Summary
Whilst the majority of traders look at penny stocks, they tend to look past basics such as the number of shares outstanding. It is essential to research a companies basics and combine this research with information on how considerably the shares are being diluted (via stock splits etc), and because of the issuing of new shares in order to raise capital. Share dilution is damaging to existing shareholders, and is commonplace in penny stock trading.