Finding Winners: Investing in the Right Penny Stocks

Penny stocks are well-known for their volatility and being high-risk investments. They are also known to bring some high returns. When done right, trading penny stock can be an incredibly lucrative way of investing your money. The key is to understand the fundamentals of penny stock trading. Diving right into buying penny stocks can be a costly mistake if you don't make sure to take the proper steps to get the right shares. Here are a few tips on what to consider before making your first penny stock trade.

Researching the Company

With penny stocks, most of the options are new companies that are just starting out. These stocks don't trade on the big exchange networks, and as a result, they don't have the same regulations to follow that the companies on NASDAQ and NYSE have. It is easy to be fooled by a lousy stock if you don't do extensive research on the company before purchasing stock. If you can't find enough documentation to make an informed decision, its best to pass on that stock.

Avoid Scams and Fraudulent Claims

When looking at penny stocks, it is a good idea to think of each stock as a scam until you find enough data to prove it has value. Many times if you look into the source of the stocks report, you will discover insiders and paid promoters are behind the share. These recommendations are setting investors up so they can profit on their loss. When looking at penny stocks and hearing promoter's claims for the company, it's essential to look into this information to see how valid these claims are. If you can't find the right information to prove the company is legitimate, it’s best to pass on those shares. Finding winners. Investing in right penny stocks.

Evaluate the Companies Shares

Knowing how many shares are available is another essential thing to consider, many companies need to issue more shares in an effort to raise extra capital; by doing this, they dilute the company shares. When the stock is diluted, the current investor's stock value decreases. It's important to take note of this, as companies that continue to issue new stock can drastically affect the value of your shares. When looking at penny stocks, you want to find companies that show positive growth and stability.

How to Choose a Winning Stock

The key to spotting a winning penny stock is to know the company’s fundamentals. If the financial records of the company look sound, the company isn't continually issuing more shares, and the company is showing a profit and a strong business structure, then they are showing the signs of a good investment.

Keep in mind that when you're buying a stock, you're becoming a part owner of that company. So, short-term market movement’s aside, the value of your investment depends on the health of the business

These are the keys to picking a winning stock and they come from doing your research. If you want to learn more about finding profitable penny stocks, check this out.

Tahirnajmi is an evergreen investor that creates, grows, and funds innovative companies and talented entrepreneurs in the St. Louis region.