Are you interested in penny stocks? Here is why you should avoid penny 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.
Penny stocks 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 realize these businesses typically have horrible income statements, cash flow statements, and balance sheets. 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 and are typically classified as Overpriced within TYKR.