Best penny stocks will make you rich, and the worst ones will make you broke. It's as simple as that. Penny stocks are some of biggest ways to lose and make money around, and the difference is usually the quality of information when choosing them. Read on to find out what qualities to look for in the best penny stocks.
You want a high PE, this is a great indicator of the best penny stocks. . PE, or Price-Earnings ratio shows roughly how much each investor pays per share for the profit generated by the company. This is calculated by dividing the price of the stock by the Earnings Per Share figure. This measurement is one of the most common in the trading world, so get used to using it. Once you calculated the figure, you compare it to the PE of other stocks in the market, or even better, those in the same industry sector. If yours is noticeably higher, chances are it's going to put the price up.
The best penny stocks don't only have a high PE, they also have a LOW PEG. PEG stands for Price/Earnings/Growth, and is calculated exactly like that, work out the Price-Earning ratio as mentioned before, and then divide that by the analysts’ projected earnings per share over the next 3 or 5 years. Traditionally, low PEGs are better, and many pro traders won't consider anything with a PEG over 1.0.
Another fundamental aspect to consider for penny shares, and other shares in general is cash flow. A lot of people tend to forget about this, as the penny shares are so cheap even a slight price rise can bring tidy profits. Just be aware that a company with non existent or reducing levels of profit can't sustain a share price indefinitely, it will almost certainly need to drop at some point to reflect the lack of profit.
Lastly, another useful quality present in the best penny stocks is steady and competent management. At first glance it seems like something you could never possible find out, but it's just another calculation to be made. All you do is divide the annual profit figure by the annual sales figure, to get the profit margin. Put simply, the larger the profit margin the better. A company that needs a billion bucks in sales to turn a profit is generally not as well managed as a company that takes 10 million to make 2 million. Make sense?
As you've seen, the penny stocks and shares world can be a minefield, so hopefully this article will help you choose the best penny stocks. Click the links below for more help.
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