As everyone knows, the basis of a good investment strategy is sound research. That is true whether you invest in large caps or are looking for penny stocks to buy. However, it needs to be borne in mind that a lot of information is easily available for most stocks. But when it comes to penny stocks, the flow of information is not as generous.
Penny stocks generally trade under a price of $5 per share and there is not a lot of volumes. This is why information is scarce. However, if an investor manages to get hold of a penny stock which has the potential for growth, there is a genuine possibility of making a good return on investment.
Select A Sector Or Industry
One of the best ways to go about the research is by narrowing it down to industries that are in an upturn. The next step is to put together a list of penny stocks that might be operating in those industries. In that way, the number of companies to research will shrink considerably.
Cross Check With the SEC’s website
Additionally, the Securities and Exchange Commission (SEC) website is a good place to get more of an idea about a company. If the company has been delisted from major exchanges then it could be a red flag. While it may not mean it is a poor investment, it could mean the price of the stock had gone below a dollar. It is usually an indication that the company might be hard pressed to raise capital.
Online Resources For Penny Stocks
However, that is not all. There are plenty of free online resources that provide free copies of a company’s latest filings with the SEC. It is worthwhile to get the latest reports and go through the financial situation of the company, before making any kind of decision.
The financial reports will also give any investor a far clearer idea on the way in which the company makes money and if it appears that the business model is viable, then it could prove to be a good investment. Last but not least, checking the daily volume should also be part of the research.