Top Penny Stocks

The top penny stocks generate extraordinary returns for the investor. These are shares of companies that trade below $5. Companies that issue these shares are young companies that have been in existence for less than five years. The proceeds from these stock issues are used to finance expansion, advance research on proprietary technology or both. Given the brief operating history of these companies, their relatively new products and technology, investing in penny stocks can be very risky. If the right penny stock is selected, the returns to the investor can be many times over. Many of today’s major corporations had their start as a penny stock. To improve your odds of picking that penny stock winner, here are some points to consider:

The Company Is Rapidly Growing Sales And Profit
The reason for investing in these emerging companies is their growth potential. A company with $10 million in annual revenue can grow it sales exponentially, where as a company with $1 billion in annual sales will find it more of a challenge to grow at the same rate. An indicator of a successful company is one that is posting rapid sales and profit growth in excess of 30%.

Up To Date Quarterly Reporting Of Financial Results
To properly valuate a stock, the latest financial reports are required. The investor needs the most recent numbers from sales, profits and balance sheets to determine the value of the company and its shares. A company that is up to date with the filing of its financial statements indicates that they have real operations generating revenue.

The Company’s Unique Competitive Advantage
In a free market environment, only the strong survive. For a new company to thrive in their chosen industry, they cannot offer a “me too” product unless they can profitably deliver it at a significantly lower cost than their competitors. The key to the success of the emerging company is the commercial attractiveness of its unique offerings to their potential clients. Ideally, the promising company has a product or service that nobody has, creating a whole new market and no competitors.

The Management Team Of The Company
Especially for a new company, the management team is critical to bringing the company to the next level. For the investor, these executives’ past experience and qualifications are relevant in moving the company forward. Their accomplishments include increasing sales, successfully ran growing operations and are innovators of new technology.

The Company No Longer Needs To Issue Shares
Whether it’s to fund more research and development or to fund sales growth, these companies need to issue shares. Due to the nature of their business and the newness of the company, it is not feasible for them to issue debt or obtain a loan from banks. For the current shareholder, their stake in the company gets diluted. With more shares being issued, the company’s earnings are shared amongst more shareholders. An ideal company to invest in is one that no longer needs to issue shares. Their operations are profitable and generating positive cash flow.

The Company Is A Turn Around Play
There are many corporations whose shares use to trade significantly higher that are currently trading below $5. There could be many reasons for the company share’s steep descent to penny stock status. They include crippling debt, bad management, corporate fraud and uncompetitive product and service offerings. Most of these stocks deserve to trade at these low prices. Many will eventually disappear from the stock exchange since these shares are worthless. The shares that are potential turnarounds are companies that are not victims of massive fraud or misleading accounting. If the accounting is not certain, it’s close to impossible to properly value the shares. The catalyst for a turnaround is a new management team, successful debt restructuring, new products or services and most importantly, profitability.

The Company Stock Has A Following
The company is profitable and has been consistently growing its sales and earnings. Despite its success, its share price has not moved up. One explanation for this is the lack of research analysts following the company’s stock. Eventually, the share price will appreciate as more investors recognize the company’s merits. For the investor looking for a potentially quicker return, the shares of a promising company with active brokerage coverage tend to have more promise. The brokers’ research analysts communicate these companies’ positive developments to their investing clients, creating demand for their shares.

The Shares Of The Company Are Actively Traded
For the investor, more stock trading activity means that the buy or sell orders are likely to be filled at reasonable prices. This means the orders are filled close to where the market is. The investor does not have to worry as much about orders being filled at unfavorable levels or waiting for a while before the buy/sell order is executed.