Penny stocks are those stocks that are traded below Rs. 10 in India and traded less than $5 in the US markets. These penny stocks don't have much information around them, and they have the least information. Penny Stocks are not the choice of the players who want to earn huge profits, and not many traders are interested in trading their money in such stocks compared to the large market capitalization of already established companies.
The penny stocks are hard to spot in the market and have low capitalism and investment. Rarely do these penny stocks make it big in the market when the company works exceptionally in the backend. Traders can risk their money in penny stocks as they are not expensive and involves less money, but while making the investment, it is necessary to understand the company's financial health, financial analysis, and understanding how the company will perform in the future.
Multibagger Penny Stocks are similar to penny stocks; the only difference is their price variably increase from the time of the investment. Suppose, as an investor, one invests in a stock priced at Rs. 5, and over time, the price soars to Rs. 10, then it is called a two-bagger. Similarly, if the price reaches Rs. 15, then it is called a three-bagger, and it keeps on. When the price reaches Rs. 10, it is a 100% profit, and when it reaches Rs. 15, it is 200% profit and keeps on increasing. This is called the Multibagger Penny Stocks.
Penny stocks are hard to find and especially those which later turn into multi-bagger penny stocks. Most investors don't think penny stocks are that great, but if the prices are increasing, it is better to understand the company is having strong fundamental and financial health and can make a lot of progress in the market in the long run. Not all companies can start with a huge market capitalization, and a few can say never. These are also called small-cap multi-bagger stocks as these are usually found between mid-cap and small-cap stocks.
Penny stocks are often misinterpreted as the never high earning profit stocks because they start low, and investors in the market are highly impatient. If the leadership skills, management, financial stability, goals, and right decision-making capability exists in the company, in no time, it can turn into a multi-bagger penny stock and get high returns at low investments. It takes time, and the investors or traders need to hold the position for long periods to see them in action.
Multi-bagger penny stocks are most of the time undervalued. If the company has better management and potential on hand and huge promoters, on the other hand, they will eventually turn into multi-bagger profits. It is a personal opinion; these multi-bagger penny stocks give higher gains at a lower risk in the start stage.
Undervalued? As an investor, how to know if the company is undervalued? Maybe it is overvalued and not performing well. In that case, it would be a wrong decision to invest in penny stocks. To know if the company is undervalued or overvalued, the simple step is to calculate the P/E ratio. The price-to-earnings ratio is achieved by dividing the stock price by earnings per share, and if the P/E ratio is low, then the stock is undervalued.
The toughest is to find the multi-bagger penny stocks, and when they are found, it is difficult to pick the right stock. Here are some of the traits help pick the right multi-bagger penny stocks -
It is important to know the industry before picking the stocks. In the recent period, there have been a lot of ups and downs in all the industries, and there are a few major industries that stayed down and a few that went booming. Know the industry first and try picking the stock of the industry that is not directly or indirectly affected by the macroeconomic conditions or sudden situations. A proper analysis for a period can help to realize which industries are performing well.
The company portfolio is one of the most crucial steps in the analysis. Consider checking the competitions and how well the company portfolio is built, is it competitive? Does it offer product or service-based offerings? It is important to understand the company's demand and supply dynamics.
If an investor plans to invest in penny stocks, it is important to check the debt-equity ratio of the company and if there are any liabilities. The debt-equity ratio signifies if there are more liabilities, the company has sufficient assets that can be used as cash to remove the liabilities. It is calculated by dividing the liabilities (total) by the equity of the shareholders. If the ratio is below 0.5, the company is doing great and has lesser debts, and if the ratio is above 0.5, certain debt issues may interrupt the cash flow.
There are several more factors such as free cash flow, company's margin, earning's growth, valuations, management, promoter holdings, and a dozen more traits.
Final Words
Penny stocks are undervalued and misinterpreted. In a personal opinion, a right penny stock can brag high profits at lesser investments. Multibagger Penny Stocks are similar to penny stocks; the only difference is their price variably increase from the time of the investment. Solid research on the company can help in the long run making huge profits.
Penny stocks are those stocks that are traded below Rs. 10 in India and traded less than $5 in the US markets.
Multibagger Penny Stocks are similar to penny stocks; the only difference is their price variably increase from the time of the investment.
Yes, they can if the right company, right industry, and right research are performed. Eventually, penny stocks grow in the long run when it has solid management, foundation, P/E ratios, and backed by huge promoters.
If the company has great potential, a good P/E ratio, solid management, and better goals, it is good to buy penny stocks as they will eventually grow.