How to Pick Penny Stocks | How to find Multi-bagger stocks
There’s no sure way to tell which penny stocks will become big winners and which ones will go bust, but there are some signs that might help you spot a potential winner or loser. This article delight helps you to evaluate penny stocks and give all insights regarding How to Pick Penny Stocks
What Are Penny Stocks?
Penny stocks are those that trade at a very low price, have very low market capitalisation, are mostly illiquid, and are usually listed on a smaller exchange. Penny stocks in the Indian stock market can have prices below Rs 10. Such stocks are quite popular with retail investors because of their potential for huge gains. The gains may be in the range of 300% to 500% or even higher. Even if you have a small investment of Rs 10/-, you can still gain up to Rs 1000/- profit. At the same time, Penny stock trading is not for everyone. It is risky, so only invest what you can afford to lose. Even if your research indicates that a particular penny stock will rise in price, there’s no guarantee that it will.
How to Analyze winning penny stocks ? | How to pick Penny Stocks
With penny stocks, the lack of timely and pertinent public information makes fundamental analysis difficult to analyze. However you must keep following parameters in check to uncover a sound penny stock investment.
Market Capitalization should be less than 1000 crore
Vodafone Idea Ltd. trades around Rs. 10, but it is not a penny stock as the company market capitalization is around 32,000 crores. So, one should check the company’s market capitalization to know whether the stock falls under the small market capitalization criteria.
Low Debt Ratio
If an investor plans to invest in penny stocks, it is important to check the debt-equity ratio of the company . 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.
You can screen low debt ratio and other fundamental parameters of a stock with https://www.screener.in/.
Profit growth more than 20%
If the company has grown its income with profit growth rate of at least 20% , it could be consider. Healthy and consistent growth in operating earnings & profits is more critical in the context of penny stocks.
Know the Company Portfolio
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.
Shareholding Pattern:
We should check whether the promoter of the company is increasing or not and who is the non-institutional investing in the company. If DII & FII promotors holding is rising with time, that’s a very good sign for a multi-bagger penny stock.
Important points to consider while selecting a penny stock | Picking Multi-bagger stocks
Don’t invest large amounts. Penny stocks should not account for more than 10% of your total equity portfolio.
Don’t invest and forget. If the stock witnesses a sharp rise, it may be time to exit or at least book partial profits. Do not wait for long run.
Don’t try to average your purchases If you bought a share at Rs 5 and it is now trading at Rs 3, don’t try to average out your purchase by buying more of it. You may end up digging a bigger hole for yourself and lose more money.
Final Takeaway : How to Pick Penny Stocks
The speculative nature of penny stocks requires due diligence and analysis to make the investment in these securities. It’s vital to learn how to read and interpret technical charts and patterns before investing in penny stocks. Penny stocks are not right for everyone, despite the fact that they have a lot of great attributes & returns. They truly can turn a small investment into a large sum of money pretty quickly, but they can just as quickly wipe those money out too. So, first understand the concept sensibly. If you are not confident about it, do not feel bad about walking away from the entire concept.
Read also : All about Contrarian Investing ! ( https://thebrightdelights.com/all-about-contrarian-investing/ )