Penny stocks are lowly priced stock, normally below N5 in the nigeria stock exchange. Some of these stocks are yesterday's blue chips, but due to one problem or the other, their prices was pushed down to penny stock level. Some on the other hand are small companies that are just coming to the market.
As any informed investor will tell you, penny stock are risky. Some of the companies are struggling financially. But as peter lynch said, "stock market is like a gamble,you only manage to tilt the odds in your favour". So, as pennystocks carries a big risk I will quickly add that it is highly profitable if you know how to pick a promising ones. Now lets see how you can spot a promising pennystock when many people are not looking in their direction.
HOW TO SPOT A PROMISING PENNYSTOCK
1. Restructuring programme:
Any pennystock company that is restructuring is worth looking into. The reason being that they are trying to fix an identified problem. e.g. UTC, UAC, JOHN HOLT.
2. New Investors:
For somebody or group of people to stake their money and manpower in a moribund company means they have strong believe and vision to take that company to the next level. e.g. ACCESS BANK, CHAMPION BREWERY.
3.Capital Injection:
Many pennystock companies are only suffering from lack of capital. Once they are able to come to the capital market to raise long term fund in the form of public offer, right issue or debenture stock, they will pick. And this will translate to increase earnings.
4. New Technology:
Our world is dynamic and so is the way we do things. There may be smart entrepreneurs with access to new innovatic products or services that may change the way certain things are done for the better.
5. Growth Trend:
If the stock is having upward growth in all its indices for sometime, then the stock is likely to do well.
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