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Choosing the Right Penny Stocks II
At the end of the day, companies and businesses are there for one reason and one reason only and that is to earn profits. Profits or earnings are what you get after you deduct the expenses from the revenues. The bigger the earnings are, the better your penny stock is doing. It really takes no genius to understand that the more money a corporation has in excess of what it is spending, the more opportunities it has to expand and to develop its product. Looking at earnings per share (EPS) and comparing it with the EPS of the other corporations is a great way to know how other corporations are doing. Choose penny stocks that have an increasing positive trend of earnings. Stay away from corporations that have negative earnings.
Aside from increasing profits and revenues, you also want to look at the presence or absence of a corporation's sustainable advantage over its other competitors. It is, of course, great for a company that has an advantage over its competitors. Is your company using cheaper labor or on the brink of a break through in research and development than the other corporations? Finding this competitive advantage that sets a corporation apart boosts a penny stock's chances of increasing its share price.
Choose a penny stock that has no or low debt level. A corporation is doing well if it is able to operate without borrowing excessively. A corporation who has no debt is more flexible than its debt ridden counterparts as it still has the option to borrow money to expand the business. Paying debt tends to lower profits and therefore, the less debt the better. It is also a good corporation if it can lower its debt as time goes by. Stay away from penny stocks that are owned by corporations that have increasing debt.
It has been argued that looking at the trading patterns of the so-called insiders in a corporation is not really a great indicator of how a corporation is doing. There is no guarantee that these insiders are selling or buying stocks because they know the company will collapse or become stronger. They may just as well trade stocks for personal reasons. Also, these company officers may have no idea how to play the stock market. It is best not to put too much credibility on insider trading. However, having said that, you can still use insider trading to determine a penny stock's situation. A consistent trend of buying company stock may mean that the company's officers believe in the company and this would make them work better to increase the company's profits.
Choose corporations that have a consistent and increasing yearly plan of buying back their own shares. The corporation, at the start, sells their stocks, but after a certain period, buys back a portion of these shares and retires or eliminates them. This is good for the stockholder because as the available shares of stock decreases each share of stock remaining becomes more valuable. Avoid corporations that are annually increasing their shares of stock that are out in the market.
Aside from increasing profits and revenues, you also want to look at the presence or absence of a corporation's sustainable advantage over its other competitors. It is, of course, great for a company that has an advantage over its competitors. Is your company using cheaper labor or on the brink of a break through in research and development than the other corporations? Finding this competitive advantage that sets a corporation apart boosts a penny stock's chances of increasing its share price.
Choose a penny stock that has no or low debt level. A corporation is doing well if it is able to operate without borrowing excessively. A corporation who has no debt is more flexible than its debt ridden counterparts as it still has the option to borrow money to expand the business. Paying debt tends to lower profits and therefore, the less debt the better. It is also a good corporation if it can lower its debt as time goes by. Stay away from penny stocks that are owned by corporations that have increasing debt.
It has been argued that looking at the trading patterns of the so-called insiders in a corporation is not really a great indicator of how a corporation is doing. There is no guarantee that these insiders are selling or buying stocks because they know the company will collapse or become stronger. They may just as well trade stocks for personal reasons. Also, these company officers may have no idea how to play the stock market. It is best not to put too much credibility on insider trading. However, having said that, you can still use insider trading to determine a penny stock's situation. A consistent trend of buying company stock may mean that the company's officers believe in the company and this would make them work better to increase the company's profits.
Choose corporations that have a consistent and increasing yearly plan of buying back their own shares. The corporation, at the start, sells their stocks, but after a certain period, buys back a portion of these shares and retires or eliminates them. This is good for the stockholder because as the available shares of stock decreases each share of stock remaining becomes more valuable. Avoid corporations that are annually increasing their shares of stock that are out in the market.
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