Strategies for Evaluation of Penny Stocks

When you are making decision to invest in penny stocks, there are a lot of options available for you for making the appropriate choice. There are financial statements, press releases, indicators and other interesting tools available for the investors to make their decision process easier. There are different approaches followed by everyone to analyze a company and the wise decisions will be based on the truths and facts associated with any organization.

The focus of a person should be to keep the best penny stocks under consideration from a list of thousands of them available. Many people choose wrong investment opportunities and select the worst stocks, which results in loss of their money. It is very important to be particular about the set of penny stocks to purchase and trust. It is not going to be easy for the investors as stocks may get ups and downs quite often. If you are rigid in making the choices, it will be difficult for you to earn. Ultimately, what matters the most is your focus on the right track.

Strategies for Evaluation of Penny Stocks

Fundamental analysis

The fundamental analysis approach has involvement of research of company’s futuristic plans and prospects. There are many factors to determine the approach followed by a company for their work and all of them are not directly related to the company. It can be company’s financial stats, quality management, economic data and a lot of other factors. For example, if you take the case of a gold company, the considerations will be:

• The climate of the existing country for mining and payouts required for the related expenses. The price of Gold Company will depend on the factors related to the country in which mining is done and the purchases are made.
• The boards of directors leave the company leave due to no mentioned reasons and the change in management is always a signal of problems. The shares of the Gold Company will fall off in price.
• The results will have variations in financial position of the company and it might bloom up to an unexpected level with the past status and financial background of the company.

Penny stocks are different from large cap stocks as these are lesser concerned about the company’s status. The penny stock companies are beginners in stock market and have less chances of getting profitability soon. It is important to look at the management experience for sector trends and get appropriate results towards the profitability rate. You can begin the fundamental analysis if there is positive news about the company with respect
to financial stats.

Quantitative Analysis

This analysis is used by the investors having computational power. It gathers numerical information on interest rates along with the financial indicators, calculations and other mathematical models resulting in the targeted price of a stock. If the target price is higher than the present pricing, the chances of stocks to rise will increase and it will earn you better returns.

Penny stocks are novel companies having lesser available information and the computational models are not very well explained due to the initial stages of the company. It is always better to evaluate the data from the matured companies having previous data of similar position for the penny stocks under analysis. The trends can be calculated from the historical data of the company.

Technical Analysis

Technical analysis approach doesn’t include any information about the niche or the company. It is the historical study of the stock prices and the associated market behavior with repetition in the data patterns. There are many moves in the stock market and the cycles usually repeated with time. This data can be identified and traded to the profitable end in the most reliable way.

Penny stocks don’t use technical analysis for investments all the time. The stocks trading in low volumes don’t require add-ons to spread between the bids and the prices might become too high. The small companies float newsletters and advertisements causing the prices to grow or drop based on the news spread about them. High volume penny stocks can behave in technical patterns and can swing more than the large cap or mid cap stocks in the rarest cases.

The ways of penny stock evaluation are different and it includes different forms of shared information. The focus on one aspect will affect the decision in its own way. The fundamental analysis will help in learning about the inner working methodology and operations of a company. Quantitative analysis will give the target pricing based on the previous history of the stocks and the associated industry. The technical analysis will help in identification of patterns based on the repetitive history and the ongoing trends. The best thing is to select the strategy based on the risk profiles and your own personal investment horizons.