Best penny stocks are defined as the shares that trade in a double-digit value in the market but could have a high potential to grow as high as a multi-bagger. In the United States, Penny shares are categorized as shares that trade below $1 or below $5. There are some instances when penny shares perform exceedingly well that you cannot even imagine, despite being considered too risky for investment. Shell companies can easily manipulate penny stocks when they target them. However, investors are always attracted to penny shares to make easy money in less time than possible. Unfortunately, most of them lose money within the timeframe they set.
Why choose penny shares
There can be some challenges involved in choosing penny stocks over industry-hit stocks, but they can be overcome to some degree if they are well-researched and analyzed both from a fundamental and technical perspective. A large number of scams are discovered every year by SEBI during their investigations of stock manipulation and rigging. Nevertheless, penny shares have their own advantages and disadvantages
Advantages and disadvantages of penny share
Advantages –
Penny shares are too lucrative to be true. An ideal penny stock can grow enormous if its business setup is established well and attracts the market.
Low price of a share = more no of shares
Disadvantages –
Too risky if it gets manipulated
Falls under lower circuit
This was a rare find for the company
Most penny stock companies do not give dividends
How to identify the best penny shares in 2023
Daily volume
The Daily volume refers to shares sold and purchased by the investors. For example, if X sells shares a number of 500 and Y buys those 500 then the volume is 500. A good volume indicates that investors are more interested in the investment. Before placing your buy order, make sure that you have a good volume.
Fundamental analysis
I have discussed the complete in-depth analysis of the most important fundamentals
Price change
represents the volatility of a share in a trading session. It can also be interpreted as the change in price from yesterday to today’s price. Generally, too much price change brings uncertainty and too much confusion. The company’s revenue report, investor sentiment, and supply and demand could impact the price.
Market value
of a company refers to its market cap. The market cap is calculated with the total outstanding shares multiplied by the current market price of the share.
Business sector
is what represents the industry in which the company operates. There are numerous business sectors that range from banking and health care to pharma and consumer food.
Compared to the energy sector, Tech typically has a high growth rate. As Technology is changing new age inventions are happing in the industry like AI, Blockchain, and Robotics showing massive demand is replacing human existence.
Board members
Board members are also known as the company directors who serve on the board of a company. They are the supreme individuals of the company responsible for taking important decisions and planning strategies. Basically, the board of a company consists of promotors and the most experienced people.
It’s important to consider the board and their experience
Results
The results of a company depict the financial performance of the company which is the most crucial and predominant factor that gives an understanding of the performance of the company.
A strong financial result can make the stock reach its peak on the upside while that same is applied to the negative results on the downside. A well-balanced positive growth can boost the investor’s confidence.
Active meetings
Conducting regular conferences, Board meetings, and AGMs will definitely improve the investor’s sentiment that the company is actively participating in their business operation to achieve growth.
Shareholding pattern
A company will dilute some of its shares in the secondary market at the time of its IPO. The shareholding pattern indicates the information about who owns how many numbers of stocks. It is difficult to understand the pattern in numbers rather than understanding percentages.
Holding more than 50% by promoters can boost confidence. This information is easily available on the stock exchanges.
Dividend yield
The dividend yield is the amount of money a company pays annually to its investors compared to the stock price. The dividend yield is also a metric to find if the company is really functioning and earning money through its business operations.
News and press release
news and press releases are nothing but a sizable source of information that the company discloses with its shareholders whenever they get into any major transaction or financial results.
Bottom line
Frankly speaking, investing in penny stocks is too risky and most people lost more money than they make. Even I lost a significant amount of money through penny stocks and gained a lesson from it. So, please try to be mature before investing in penny stocks.
