Are you interested in penny stocks? Here is why you should keep looking for other stocks.
Any stock with a share price less than $5 (USD) is classified as a “penny stock” and 99.9% of penny stocks never break out past $5.
If you live in a country where a lot of stocks are less than 5 dollars (in your native currency), please be careful and make sure you complete a 4 M Analysis on the stock before making an investment.
Penny stocks are are essentially businesses that have run out of ways to raise funds. Bank lending has slowed down or completely stopped, venture capitalists have lost interest, and even private equity laughs them out the door. So how do businesses like this raise more capital? The simple answer is to go public. Unfortunately, most retail investors don’t know the difference between a good business or a bad business. And when these stocks go public, they arrive at a low share price such as less than $10 (USD). A lot of retail investors believe they can “get in early” and make big bucks when in reality, large institutions won’t even pay attention to these stocks and the share price will remain where it went public, inevitably.
If you’ve seen the movie, The Wolf of Wall Street, you may remember Leo DiCaprio’s character calling these stocks complete garbage, except he didn’t use the word “garbage.”
Penny Stock Rules:
- If a stock is $5 or less, there is a 99.9% chance the stock will never go higher than $5.
- If a stock is between $5 and $10, there is a 90% chance the stock will never go higher than $10.
Keep looking for better businesses.
Tykr looks at more established mid-cap and large-cap stocks. These are businesses with stronger financials. In other words, Tykr looks for businesses that have well-established revenue channels, higher profits, lower debts, and more.
Overall, penny stocks are very weak businesses. If these types of stocks are in Tykr, they are typically classified as Overpriced. In other cases, penny stocks won’t even be listed in Tykr.