How You Can Make Or Lose Money In Penny Stocks?

How You Can Earn Or Give Away Money In Penny Stocks?

As we have seen earlier, penny stocks carry higher risks but can also deliver higher returns.

This also means that you can either lose or make a lot of money on risk-to-reward ratio.

How your outcome will be depends on how you assessed the investment before putting in your hard-earned money.

However, you should be aware that no matter how much care you take, there is a certain amount of risk associated with penny stocks.

The risks are based on large cap and stock exchange registered stocks’ market values.

To assess whether you can make money out of a penny stock, you should understand how one makes money in the stock market.

One of the returns that one gets from a stock investment is in the form of dividends.

That is usually a very small portion of the returns that one gets from stock investment.

The major returns come from appreciation in the price of the stocks.

The prices of stocks are assessed using different yardsticks or parameters.

The first of these is the return on investment.

If the return on a stock is 10% and the price earnings ratio is 10, for example, the stock will be priced at 10 times the earnings or 100% of issue price.

In other words, this stock will be traded at its face value.

From this, we can see that the price depends on two things as in the absolute return and the price-earnings ratio.

The second important factor that affects the price is the book value of the stock.

That is basically computed as a figure that represents the assets available in the company against each stock.

For example, if a company has net assets of $100,000 and has issued 10,000 shares, the value of each share under this method will be $10.

The price of a share is also valued on other criteria.

However, the most important factor from the market point of view is the returns that the stock generates.

The value under this method depends on the earnings and the price-earnings ratio.

The latter is a matter of perception that will depend on the risks associated with the stock.

This perception will undergo changes depending on the history of performance of the organization, the available information about the company, its prospects, and the market buzz about impending major events in the company.

For example a takeover by a major organization.

Of these, the most important are the earnings’ consistency and quantum long term and the direction of the price-earnings ratio short term.

As an investor what you need to assess and be aware of are

– Does the company have a good asset base?
– Does it enjoy a good business?
– How long has it been in business?
– How is the market perception of the company?
– How is it likely to change?
– How are the fundamentals?
– Is the company stable enough to sustain its earnings and growth?
– Who are the promoters?

Finally, the old saying, on never put all your eggs in one basket, is true to a greater extent in the case of penny stocks.

So invest a little at a time and do not put all your money on one or a few such stocks.


Review Of Penny Stock Prophets

Created by James Connelly, Penny Stock Prophet is an online learning program in which the creator identifies penny stocks that he claims should increase their value.

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