On the surface of things, penny stocks appear attractive due to their cheap price. However, I’m smart enough to understand the difference between value and price. Let me explain my approach to small caps, and give an example of a former penny stock currently on the .
Things I look out for What does the business do, and how can it make money and grow? Is the business offering something entirely new to market? What is its unique selling point for its customers that could help grow earnings, and potentially provide shareholder value? The firm in question may be simply looking to change the game for an existing product or service. However, due to their smaller stature, small-cap companies often come across challenges. One of the biggest obstacles that small caps face is financial might.
A small cap won’t have the same flexibility or strength on their balance sheet that a larger established firm generally has. This can often lead to financial troubles, and in many cases, they fail. Many of these firms borrow to fund growth, and this debt can often become a huge insurmountable burden.
Finally, when a small cap comes along that is a potential money spinner, there’s always a chance that a larger firm in the same industry will offer to take it over, and buy it. This isn’t the worst-case scenario, as shareholders are often compensated handsomely as part of the deal. One former penny stock turned giant There is tangible evidence that penny stocks can turn into giants.
A prime ex.
