penny stocks corporate filings to know

Do You Know How To Research Penny Stocks?

What is DD when it comes to penny stocks? If you’re new to trading or are just looking to learn something extra about research, let me explain. The definition of DD is simply the abbreviation for Due Diligence. You might have come across a statement talking about it on social media. Maybe you saw it mentioned in an email somewhere. This “DD” is basically another term for research.

Whether you’re a day trader or looking for ways to invest in penny stocks, understanding why certain issuers’ shares are moving is important. I’m sure for those of you who’ve been in the market for a little bit, you’d agree that some catalysts are more impactful than others. These same impactful catalysts may also leave a longer-lasting impression on the market.

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I’m sure you’ve also seen certain penny stocks break out big only to come back down either the next day or within a few days to follow. Meanwhile, you’ve likely seen certain penny stocks trade at new highs and then continue even higher after certain company events came to light. Chances are, the finer details that were in certain public company filings revealed more info that traders used to either stay in a trade longer or take their money and run to the next trade later on.

Why Are Corporate Filings Important?

Sure, we know the Securities and Exchange Commission requires companies to timely file certain statements. But don’t discount disclosures. More times than not, these filings will reveal a lot more information that typically isn’t expanded on in press releases. Here’s where you can dive through the fine details of a company’s operations. You can see which insiders are buying or selling. You can also see if there are large hedge funds or activist investors taking positions in companies. All of those details might not be reported by the company in an announcement.

penny stocks corporate filings

Chances are, however, you’ll see them in the filings. This is why I think it’s so important to not only understand trading penny stocks based on technical analysis but to also have a sound understanding of basic fundamental analysis. In this article, we won’t go over financial ratios or things related to that.

But we will discuss some of the filing types that can reveal timely information if you’re looking for a potential catalyst behind a move. Are there other filing types? OF COURSE! However, if you’re an active trader, you want a “go-to” for seeking out quick info. Here are some of the filing types traders use to put together an action plan before buying penny stocks.

On a side note, if you need to access this information, we offer it on Search any company’s symbol in our “Ticker Symbol” search box and under the company’s “Detailed Quote,” you’ll see different tabs. One of these tabs is labeled “SEC Filings”. Now let’s get down to business. You can also learn more in our 60+ page eBook all about how to trade penny stocks, here.

What Is A 10-K Filing?

The definition of a 10-K filing is a comprehensive annual report about a company’s financial performance. This is a once-a-year filing for a public company. It’s required by the Securities and Exchange Commission (SEC) for the majority of publicly listed companies.

It’s a very long filing but gives a full report on a company’s history, organizational structure, executive structure, and compensation. It also reports the full-year financial statements and earnings. You’ll also see management’s discussion on performance and risks related to the business.

What Is A 10-Q Filing?

The definition of a 10-Q filing is a comprehensive quarterly report about a company’s financial performance. Typically, a company will file 3 “Qs” and then its “K”. It provides investors with the ongoing performance of a company. Similar to a 10-K, the Qs reports similar information but are based on individual quarters.

They can become catalysts themselves as companies will release the statements before the formal press release. That’s another reason to look at filings, often. A company needs to file its Q 40-45 days after the end of its quarter depending on the company’s size.

What Is An 8-K Filing?

The definition of an 8-K filing or “Form 8K” is a statement filed with the SEC regarding material events or corporate changes. These focus on events that may be important to shareholders or the SEC itself. This report essentially updates the public on certain events like buyouts, financial changes, management/director changes, fiscal changes, or anything relevant to shareholders’ interests.

Sometimes companies will just file a Form 8K instead of making a formal announcement. This is usually where we see a penny stock run “out of nowhere” because the event isn’t in the newsfeed.

What Are Schedule 13D and Schedule 13G Filings?

These Schedules involve parties reporting ownership of stock that is over 5% of a certain equity class in a company. That 5% threshold is considered “significant ownership” of a company.

Because of this, it must be declared. There are much longer format definitions of these forms. But the main difference involves the size of the investor. A Schedule 13D gets filed by an “active investor” and ones owning more than 20% of a company’s outstanding shares.

[Read More] What Is The Best App For Penny Stocks?

A 13G pertains to “passive investors” owning less than 20% of a company’s outstanding shares. Once a “passive investor” reaches more than 20% of the OS, they need to start filing 13D statements. These are important because we’ll see which large funds or investors are taking a larger position in a company. These typically lift sentiment for a given company.

What Is A Form 4 Filing?

This is something that many experienced traders look for from time to time. What is SEC Form 4? According to the Securities And Exchange Commission, it is a “statement of changes in beneficial ownership.” It must get filed with the commission whenever a material change happens in the holdings of a company’s insiders.

You would consider someone an insider if they are directors, officers, or shareholders owning 10% or more of a company’s outstanding shares. The forms break down the reporting person’s relationship to the company and give important information about purchases or sales of shares. They also will show company stock options issuances. These options would typically result from a company’s employee incentive plan.

Why are Form 4s important? Well, at the very simplest level, a Form 4 will show moves being made by insiders. Are they buying stock, selling stock, exercising options, etc.? These can show optimism in the market especially when insiders are buying shares. Something else to note is if Form 4 shows an insider sale. Do specific notes come along with the filing? Is it part of a pre-determined share-selling plan? Many companies enact a selling plan under Rule 10b5-1.

It allows insiders to set up a plan for selling shares of stock that they own. Insiders will put a plan in place to pre-determine the number of shares to sell at a predetermined time. This avoids scrutiny over insider trading accusations.

What Is An S-1 Statement?

When a company decides to go public, they’ve got to file something called a Form S-1 with the Securities and Exchange Commission (SEC). This form can be a goldmine of info about the company’s operations, financial health, and future plans. For day traders, it can come in handy.

Here’s the thing: when a company first goes public, the stock market can turn into a bit of a rodeo. Prices can swing up and down as the market tries to figure out what the stock is really worth. It’s a chance to jump in, make some trades, and potentially walk away with a nice profit.

But the S-1 isn’t just about riding the waves of volatility. It’s also full of details that can help us make smarter trades. If the S-1 shows that the company is in a strong financial position or has a unique edge over its competitors, it could create a wave of positive sentiment.

But let’s not forget about the buzz that surrounds an IPO. The hype—or lack thereof—can have a big impact on a stock’s price. By keeping an eye on the S-1 and the chatter around it, we can get a sense of how the market feels about the IPO. This can help us predict which way the wind is blowing and adjust our trading strategies accordingly.

One more thing: the S-1 also tells us about the lock-up period. This is a period of time after the IPO during which insiders and early investors can’t sell their shares. When this period ends, a flood of shares can hit the market, which can cause the stock price to fluctuate. This is another opportunity for us to make some savvy trades.

How to Read SEC Filings For Speed

As I said above, there are plenty of other types of filings to have an idea about. However, these are some of the most popular SEC filings to look at for a quick and dirty DD session. Taking a look at a 10-K at the end or beginning of the year can become a strong catalyst to the start or end of any year. You’ll see the company’s financing deals, overall performance, and how they’ve managed to weather potential economic storms.

Obviously, in 2023, things like economic data and Fed meetings play a big role. During the course of the year, 10-Qs play a significant role as they can reveal how companies are able to handle short-term expansion or contraction. Additionally, you can’t ignore the fact that even shorter-term 8-K filings can reveal specific information when it comes to corporate financing deals.

The 8-K, in particular, can show the exact conversion prices or sale price of predetermined financing deals. In this light, you as an investor understand where the “big money” is investing. Furthermore, you’ll understand that if certain penny stocks drop, following 8-K financing updates, there’s likely a chance that a new support or resistance forms at that level.

Most importantly, when it comes to how to read SEC filings, there’s one thing to understand. These details are raw information. So, no matter what you take from company headlines, the reports filed with the SEC reveal the true company status, for better or for worse. It’s up to you to decide how (in the short-term or long-term) to use your researched info to build a trading strategy around.

Penny Stocks & Trading Basics

These are some of the most frequently referenced in terms of potential catalysts. When it comes to finding penny stocks to buy, it’s vital to know why a stock may be moving. So keep this in mind when doing your DD this year.

Identifying Promising Penny Stocks: 3 Top Tips

Also remember, research is important but it doesn’t need to be the sole focus. Keep track of the market’s momentum. In many cases, penny stocks with less than attractive fundamentals might break out the biggest simply because of a short term catalyst. In cases like that, you’ll want to have a short-term approach to capitalize on that momentum, obviously.

At the end of the day, the goal is to make money with these stocks under $5 and there are so many ways to go about it. So, whether you’re trading them or investing in penny stocks, make sure you do the right amount of DD based on the type of trade or investment you’re preparing to make.

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