Most Internet e-mail users have been subject to penny stock scams. There are more than fifty billion spam messages sent each day, and many of these mention investing in penny stocks. Spam isn’t a very reliable investment source, right? Does that mean that all penny stocks are, essentially, some sort of scam?
Penny stock scam is a sad fact of using the Internet. It’s possible for people to lose 8% of their investment when falling for these penny stock scams online. Often, these penny stocks do not exist or they do not exist at the advertised price. This type of scam is called a “pump and dump.” Yes, there are some scams on the Internet that center around penny stocks.
This does not mean that all penny stocks are a scam, or even a bad investment. There are some penny stocks that can make investors a good amount of profit, in fact…just not the ones you find advertised in spam. Stopping yourself from investing in those penny stocks is a great idea, but deciding never to invest in penny stocks of any kinds because of that may not be.
Yes, there are considered a high-risk investment, but it’s also possible to turn a pretty profit by using penny stocks. In most cases, there is a certain finesse needed to invest in these stocks, as they rarely trade and sometimes things happen with penny stocks very quickly. Investors have to know what’s happening all the time and be ready to make a move when needed – making penny stocks somewhat exciting and interesting to trade in. This is why some investors like them.
Don’t let Internet scams scare you away. There are a lot of Internet job scams, too, where so-called “employers” offer to pay you lots of money to do something simple like answer surveys or surf the “Net. In many cases, these “job offers” turn out to be nothing but an Internet scam, and a clever ploy to try and get your hard-earned money. But you don’t let Internet job scams keep you from working – so don’t let Internet penny stock scams keep you from investing. That still means that the scam artists win, because they’re keeping you away from something.
To learn which penny stocks are potentially good investments and which are potentially bad, there’s lots you can do. Check the business journals and stock information, or ask a broker for more information and advice regarding penny stocks. There are good penny stocks out there, and there are investments out there where you can make a lot of money. By doing your research and looking into every possibility, you increase your chances of success in the stock market. And isn’t success what it’s all about?
If you’re interested in investing in penny stocks, you can’t let anything (even scams) stop you. Do what you want to do and invest your money where you think it’s best. After all, it’s your money and only you can decide what you want to do with it. Make the choice for you, not for any other reason.
Penny Stocks: Are They Right For You?
Many people know that the stock market is a good way to invest, and increase, their money. However, playing the stock market is always a risk, and it certainly helps to know what you’re doing. For those wishing to make a small initial investment, the term “penny stocks” may come up, more than once. You may have heard that penny stocks are a great way to start small, and work your way up to being big. But how do you know they’re right for you? How do you know if you want to invest your money in these penny stocks?
Just because someone suggests you buy penny stocks, it doesn’t mean you have to take their advice. In fact, before you invest in anything it’s always a good idea to get some information on your own, first. Find out about the type of stock that’s being suggested, and then look more closely at the specific company that you’re considering investing in. Do your own research instead of just following someone else’s advice. After all, it’s your money – not theirs. Your money means more to you than to anyone else, so it’s only a good idea to look into your own investments instead of just letting someone else do all the work.
How do you know if they’re right for you, if you want to invest in penny stocks? The first step is in finding out more about what penny stocks are. Some brokers make penny stocks sound very safe, as if they always bring in large returns, as if they’re totally great. Perhaps none of this is true. Penny stocks are high-risk investments, and there is some potential for investors to enjoy large returns, but there is also some potential for losing one’s entire investment. That’s what a “high-risk” investment is – a risk. You could lose it all, but you could gain as well.
Because penny stocks are not traded through the large stock exchanges, many don’t know even about the existence of penny stocks. Penny stocks are shares in small companies and are not as “liquid” as other stocks, meaning that fewer shares are traded. Penny stocks are traded infrequently, and this is why some investors fear getting “stuck” with penny stocks that can’t be sold.
How do you know if penny stocks are right for you? Do your homework, do your research. Look closely at the penny stocks you want to buy, and learn more about buying and selling this type of stock. Your broker is required to give you certain paperwork and information on penny stocks, before you ever put your money into them. Look over this information carefully before making your decision. If you like the risk, if you like the gamble, if you like the potential, then penny stocks may be the right investment for you. Find out all you can about penny stocks, or any investment, before you throw any money that way. When you make an informed and educated decision, there is a smaller chance that you’ll regret your decision later on.
Just because someone suggests you buy penny stocks, it doesn’t mean you have to take their advice. In fact, before you invest in anything it’s always a good idea to get some information on your own, first. Find out about the type of stock that’s being suggested, and then look more closely at the specific company that you’re considering investing in. Do your own research instead of just following someone else’s advice. After all, it’s your money – not theirs. Your money means more to you than to anyone else, so it’s only a good idea to look into your own investments instead of just letting someone else do all the work.
How do you know if they’re right for you, if you want to invest in penny stocks? The first step is in finding out more about what penny stocks are. Some brokers make penny stocks sound very safe, as if they always bring in large returns, as if they’re totally great. Perhaps none of this is true. Penny stocks are high-risk investments, and there is some potential for investors to enjoy large returns, but there is also some potential for losing one’s entire investment. That’s what a “high-risk” investment is – a risk. You could lose it all, but you could gain as well.
Because penny stocks are not traded through the large stock exchanges, many don’t know even about the existence of penny stocks. Penny stocks are shares in small companies and are not as “liquid” as other stocks, meaning that fewer shares are traded. Penny stocks are traded infrequently, and this is why some investors fear getting “stuck” with penny stocks that can’t be sold.
How do you know if penny stocks are right for you? Do your homework, do your research. Look closely at the penny stocks you want to buy, and learn more about buying and selling this type of stock. Your broker is required to give you certain paperwork and information on penny stocks, before you ever put your money into them. Look over this information carefully before making your decision. If you like the risk, if you like the gamble, if you like the potential, then penny stocks may be the right investment for you. Find out all you can about penny stocks, or any investment, before you throw any money that way. When you make an informed and educated decision, there is a smaller chance that you’ll regret your decision later on.
Penny Stocks: Are Penny Stocks Too Risky?
The term “high-risk investment” sounds scary, doesn’t it? This phrase alone is enough to put many investors off. After all, no one wants to take a risk. The trouble with buying any kind of stock (high-risk of not) is that it’s always a gamble. But how do you decide when a stock is just too high-risk, for you?
There is a lot of information floating around on the Internet about penny stocks. Almost everyone with an e-mail address has gotten spam at some time or another, touting a penny stock as the next great investment. Sadly, much of this information is geared toward scamming you in some form or fashion, and it’s likely that you will lose all of the money that you put into the stocks advertised in this fashion. But that doesn’t mean that all penny stocks are bad deals, that you will lose money every time, or that every single penny stock is a scam. In fact, far from it. Some penny stocks might be very good investments, indeed.
Penny stocks are affordably priced shares in companies or businesses that are considered “small,” as opposed to big corporations. There are not many shareholders involved in penny stocks, making them less “liquid” than many other types of stock. The goal of investing in penny stocks it to part with very little money initially to enjoy a big return later on. Does it work this way? It does, sometimes, just not all the time. For those who know what they’re doing when they’re investing in penny stocks, they can be a great investment tool. Mastering the art of trading in penny stocks can be tricky, however.
For one thing, penny stocks don’t trade on the major stock exchanges. Rather, penny stocks are known as “over the counter” investments, listed on Pink Sheets and the OTCBB. This makes penny stocks rather unique, and somewhat harder to find for many investors. Penny stocks also don’t trade very regularly, so sometimes investors have very little time to act. Because trading does not occur often with penny stocks, there is always the fear of being unable to sell one’s shares of penny stocks and winding up with a bad investment. This is all part of the risk of trading in penny stocks, and many investors think this makes the game all the more challenging. When you invest in penny stocks, you should receive monthly updates that let you know how your stock is doing.
So, are penny stocks too risky? The only person who can decide that is you. Some investors find that penny stocks aren’t too risky, but others do. It’s all a question of how much gambling with your money you want to do, how much you know about penny stocks, and how lucky you feel. If you think investing your money in penny stocks is a good idea, then it probably is. Everyone has a different opinion on penny stocks. Learn more about them, and form your own.
There is a lot of information floating around on the Internet about penny stocks. Almost everyone with an e-mail address has gotten spam at some time or another, touting a penny stock as the next great investment. Sadly, much of this information is geared toward scamming you in some form or fashion, and it’s likely that you will lose all of the money that you put into the stocks advertised in this fashion. But that doesn’t mean that all penny stocks are bad deals, that you will lose money every time, or that every single penny stock is a scam. In fact, far from it. Some penny stocks might be very good investments, indeed.
Penny stocks are affordably priced shares in companies or businesses that are considered “small,” as opposed to big corporations. There are not many shareholders involved in penny stocks, making them less “liquid” than many other types of stock. The goal of investing in penny stocks it to part with very little money initially to enjoy a big return later on. Does it work this way? It does, sometimes, just not all the time. For those who know what they’re doing when they’re investing in penny stocks, they can be a great investment tool. Mastering the art of trading in penny stocks can be tricky, however.
For one thing, penny stocks don’t trade on the major stock exchanges. Rather, penny stocks are known as “over the counter” investments, listed on Pink Sheets and the OTCBB. This makes penny stocks rather unique, and somewhat harder to find for many investors. Penny stocks also don’t trade very regularly, so sometimes investors have very little time to act. Because trading does not occur often with penny stocks, there is always the fear of being unable to sell one’s shares of penny stocks and winding up with a bad investment. This is all part of the risk of trading in penny stocks, and many investors think this makes the game all the more challenging. When you invest in penny stocks, you should receive monthly updates that let you know how your stock is doing.
So, are penny stocks too risky? The only person who can decide that is you. Some investors find that penny stocks aren’t too risky, but others do. It’s all a question of how much gambling with your money you want to do, how much you know about penny stocks, and how lucky you feel. If you think investing your money in penny stocks is a good idea, then it probably is. Everyone has a different opinion on penny stocks. Learn more about them, and form your own.
Penny Stocks: Are Penny Stocks Legal?
They don’t trade on the main stock exchanges. They have not been approved by the SEC, but nor have they been disapproved by the SEC. They are labeled as a high-risk investments. Very little is even known about them, and they’re often used in Internet e-mail spam scams. …Are penny stocks even legal to invest in?
Though they may sound scary and they may be unknown, even a little mysterious, there’s nothing illegal about investing in penny stocks. There’s a lot of information out there, a lot of it bad and much of even frightening, but investing in penny stocks doesn’t mean that you are breaking a law.
It means you’re taking a chance, but there’s nothing illegal about that, is there? Yes, penny stocks are considered high-risk investments, but for a relatively small price investors can buy shares and (one hopes) turn around to make a large profit. This is the draw of penny stocks, what makes them compelling.
Also, when you buy penny stocks through a broker, you should get regular updates. Once a month, you’ll get information about your penny stocks and what their status is. This is something your broker has to do if you’ve invested in penny stocks, something that the broker is actually required to do. This lets investors track the progress of their stock.
The only trouble is, sometimes things happen very quickly in the world of penny stocks. These stock infrequently trade, and when they do trade they are not traded through the well-known and established stock exchanges. This makes is hard to both buy and sell penny stocks, so some investors are afraid of getting “stuck” with a stock that they can’t unload.
However, a stock’s risky nature doesn’t make it illegal, or even a bad investment. There are many things that are risky (like driving), but many people don’t let high risk stop them. In the world of stock investing, there is often risk involved. Perhaps penny stocks are considered riskier than some, but at the same time there is great potential to make a lot of money by investing in these penny stocks.
Penny stocks are low-priced, shared of companies that are generally on the small scale. These stocks are traded “over-the-counter” rather than on public exchanges, and this is why many investors know very little about penny stocks in general. To find more information about penny stocks, you can talk to your broker or do a little research in business journals and the like. There is information out there, and there are investment opportunities available. It’s just a matter of finding the rights ones for you.
If you’re considering an investment in penny stocks, it’s okay. Risky, yes. Mysterious, definitely. Potentially big? Sure. But illegal? No, not at all. At least right now, penny stocks are traded completely legally and under the guidelines of the SEC. Investing in these stocks can be a little exciting and a little dangerous, but you won’t wind up in jail.
Though they may sound scary and they may be unknown, even a little mysterious, there’s nothing illegal about investing in penny stocks. There’s a lot of information out there, a lot of it bad and much of even frightening, but investing in penny stocks doesn’t mean that you are breaking a law.
It means you’re taking a chance, but there’s nothing illegal about that, is there? Yes, penny stocks are considered high-risk investments, but for a relatively small price investors can buy shares and (one hopes) turn around to make a large profit. This is the draw of penny stocks, what makes them compelling.
Also, when you buy penny stocks through a broker, you should get regular updates. Once a month, you’ll get information about your penny stocks and what their status is. This is something your broker has to do if you’ve invested in penny stocks, something that the broker is actually required to do. This lets investors track the progress of their stock.
The only trouble is, sometimes things happen very quickly in the world of penny stocks. These stock infrequently trade, and when they do trade they are not traded through the well-known and established stock exchanges. This makes is hard to both buy and sell penny stocks, so some investors are afraid of getting “stuck” with a stock that they can’t unload.
However, a stock’s risky nature doesn’t make it illegal, or even a bad investment. There are many things that are risky (like driving), but many people don’t let high risk stop them. In the world of stock investing, there is often risk involved. Perhaps penny stocks are considered riskier than some, but at the same time there is great potential to make a lot of money by investing in these penny stocks.
Penny stocks are low-priced, shared of companies that are generally on the small scale. These stocks are traded “over-the-counter” rather than on public exchanges, and this is why many investors know very little about penny stocks in general. To find more information about penny stocks, you can talk to your broker or do a little research in business journals and the like. There is information out there, and there are investment opportunities available. It’s just a matter of finding the rights ones for you.
If you’re considering an investment in penny stocks, it’s okay. Risky, yes. Mysterious, definitely. Potentially big? Sure. But illegal? No, not at all. At least right now, penny stocks are traded completely legally and under the guidelines of the SEC. Investing in these stocks can be a little exciting and a little dangerous, but you won’t wind up in jail.
Penny Stocks: Are Penny Stocks Dangerous?
If you’ve heard anything about penny stocks, it’s probably that they’re a bad investment, or an Internet scam. There’s a lot of bad hype out there concerning penny stocks, and the bad rap has made many investors shy away from using penny stocks at are. But, are penny stocks dangerous to investors?
Penny stocks have a bad reputation for a number of reasons, not the least of which is that penny stocks are often used as a part of Internet e-mail scams. Nearly everyone has been exposed to these mails, which claim to offer cheap penny stocks that will bring a large return. But in truth, this is a scam, and will only cause you to lose your money.
This is one of the reasons that many try not to invest in penny stocks. But penny stocks are said to be a “high-risk” investment, which turns many people away from investing as well. After all, the words “high-risk” sound pretty scary…especially when it’s you’re money, right? High-risk means there’s a good potential to lose money, and no one wants that.
There are some advantages to penny stocks, however, and they can bring in a good return. In fact, penny stocks can be incredibly lucrative, and many investors choose to take the risk on penny stocks in hopes of getting a very large profit in the end. With penny stocks, investors often have to act quickly, as penny stocks infrequently trade.
This infrequent trading is one of the reasons that penny stocks are considered to be high-risk investments. It’s hard to sell stock that doesn’t trade very often. In the U.S., the term “penny stocks” is often applied to those publicly-traded shares that do not go through the major stock exchanges (NYSE, NASDAQ, or AMEX, for instance). Trading in an unsure market makes many investors leery of trying penny stocks out for themselves.
But for those who know how to finesse their stocks, penny stocks can bring in a good return, and this is what makes many investors bold enough to try them out. Are they risky? Yes. Are they unsafe? Not really – unless you invest in penny stocks that you find advertises in your e-mail. Don’t trust these spam messages, find your own penny stocks to invest in.
There are plenty of good penny stocks out there to invest in. It’s just a matter of finding them. Check business journals and talk to your stock broker if you have one. These are both good ways to find out about new penny stocks. Penny stocks are often cheaply bought, and in the best-case scenario are then sold for great profit. It’s this hope of a large return that keeps many investors coming back for more, buying more penny stocks, and hoping. When suck a prize awaits, many are willing to take those high risks.
Only you can decide if investing in penny stocks is right for you. Look into the stocks you want to buy before purchase, and make the decision for yourself – not for anyone else. When you decide your own financial fate, you enjoy the returns that much more.
Penny stocks have a bad reputation for a number of reasons, not the least of which is that penny stocks are often used as a part of Internet e-mail scams. Nearly everyone has been exposed to these mails, which claim to offer cheap penny stocks that will bring a large return. But in truth, this is a scam, and will only cause you to lose your money.
This is one of the reasons that many try not to invest in penny stocks. But penny stocks are said to be a “high-risk” investment, which turns many people away from investing as well. After all, the words “high-risk” sound pretty scary…especially when it’s you’re money, right? High-risk means there’s a good potential to lose money, and no one wants that.
There are some advantages to penny stocks, however, and they can bring in a good return. In fact, penny stocks can be incredibly lucrative, and many investors choose to take the risk on penny stocks in hopes of getting a very large profit in the end. With penny stocks, investors often have to act quickly, as penny stocks infrequently trade.
This infrequent trading is one of the reasons that penny stocks are considered to be high-risk investments. It’s hard to sell stock that doesn’t trade very often. In the U.S., the term “penny stocks” is often applied to those publicly-traded shares that do not go through the major stock exchanges (NYSE, NASDAQ, or AMEX, for instance). Trading in an unsure market makes many investors leery of trying penny stocks out for themselves.
But for those who know how to finesse their stocks, penny stocks can bring in a good return, and this is what makes many investors bold enough to try them out. Are they risky? Yes. Are they unsafe? Not really – unless you invest in penny stocks that you find advertises in your e-mail. Don’t trust these spam messages, find your own penny stocks to invest in.
There are plenty of good penny stocks out there to invest in. It’s just a matter of finding them. Check business journals and talk to your stock broker if you have one. These are both good ways to find out about new penny stocks. Penny stocks are often cheaply bought, and in the best-case scenario are then sold for great profit. It’s this hope of a large return that keeps many investors coming back for more, buying more penny stocks, and hoping. When suck a prize awaits, many are willing to take those high risks.
Only you can decide if investing in penny stocks is right for you. Look into the stocks you want to buy before purchase, and make the decision for yourself – not for anyone else. When you decide your own financial fate, you enjoy the returns that much more.
Penny stocks and investments
Penny stocks: Penny stocks are the small value shares that are generally preferred by many people for investments. These shares can easily be purchased in pennies and that’s why are preferred for investments. However the investment in penny stocks is risky as you are not aware about the nature and background of the company where you are investing your money. Therefore all the precautions must be taken before investing in penny stocks and a thorough research about the company offering penny stocks is helpful in deciding in favor or against a specific penny stock.
Investment in penny stocks: A wise decision and through research about the penny stocks can be rewarding otherwise this is the highly risky market. You have to be careful and should never purchase the stocks being offered to you almost free or even in a few pennies. There are some good stocks on offer and in past a few stocks offered at 10 to 20 cents have crossed the five dollar mark although majority of stocks fails to do so.
Many people see the investment in penny stocks as an opportunity to earn a few dollars at the same time invest low amount so that the risk is minimum. People get learning experience while trading in penny stocks. People also develop some research skill about the companies offering penny stocks. It is good to learn about stock market by investing a small amount and therefore the basics of investment and trading can be easily understood.
Precautions: As investment in penny stocks is highly risky and therefore some precautions are necessary to avoid loss in this market. As the information about penny stocks do not come from reliable source, you should get the second opinion from another broker before making any investment in the particular penny stocks. Do not purchase the stocks in hurry as most of the time the broker will not give you sufficient time to make a decision. Think twice before making any investment and do not invest too much in a single stock.
You may get emails or phone calls about some of the penny stocks. The brokers or companies pay for such phone calls or email spammers and therefore you should avoid investing in such stocks. Many times lot of rumors are spread about some of the penny stocks and you should be alert and never pay attention to such rumors. It is better to consult financial consult or take second opinion before investing in any penny stock. Many times companies or broker may mislead you y offering free stocks or newsletters, you should avoid all such offers.
Summary: Many penny stocks has grown tremendously in the past from a mare 10 or 20 cent and crossed $5.0 mark. A lot of rumors prevails in the penny stock market so a wise decision can give you some profit otherwise you may lose your money.
Investment in penny stocks: A wise decision and through research about the penny stocks can be rewarding otherwise this is the highly risky market. You have to be careful and should never purchase the stocks being offered to you almost free or even in a few pennies. There are some good stocks on offer and in past a few stocks offered at 10 to 20 cents have crossed the five dollar mark although majority of stocks fails to do so.
Many people see the investment in penny stocks as an opportunity to earn a few dollars at the same time invest low amount so that the risk is minimum. People get learning experience while trading in penny stocks. People also develop some research skill about the companies offering penny stocks. It is good to learn about stock market by investing a small amount and therefore the basics of investment and trading can be easily understood.
Precautions: As investment in penny stocks is highly risky and therefore some precautions are necessary to avoid loss in this market. As the information about penny stocks do not come from reliable source, you should get the second opinion from another broker before making any investment in the particular penny stocks. Do not purchase the stocks in hurry as most of the time the broker will not give you sufficient time to make a decision. Think twice before making any investment and do not invest too much in a single stock.
You may get emails or phone calls about some of the penny stocks. The brokers or companies pay for such phone calls or email spammers and therefore you should avoid investing in such stocks. Many times lot of rumors are spread about some of the penny stocks and you should be alert and never pay attention to such rumors. It is better to consult financial consult or take second opinion before investing in any penny stock. Many times companies or broker may mislead you y offering free stocks or newsletters, you should avoid all such offers.
Summary: Many penny stocks has grown tremendously in the past from a mare 10 or 20 cent and crossed $5.0 mark. A lot of rumors prevails in the penny stock market so a wise decision can give you some profit otherwise you may lose your money.
Penny Stock Returns
Why do people invest in penny stocks if they are so risky? The answer lies in a few facts as well as a few misconceptions about penny stocks. First let us look at the positive side of how penny stocks can be more profitable.
It is a well-known fact in finance that risk and return have a positive correlation. This means that an investment that carries greater risk will also give higher returns. The reason for this is very easy to understand and is almost intuitive. Suppose you had $10,000 to invest and two options A and B. Option A is a secure government bond that gives you 5% return, while option B is a higher risk investment in a company that will pay you only if it makes profits. Assume that this company has a history of making 5% Profits over several years and is likely to continue on the same lines.
That is, you can expect to get a return of 5% in future years, but that is subject to the company making the same level of profits. Where would you invest your money? If the returns are likely to be the same and if you are a sane person, you would obviously invest in the risk free option. Now suppose, option B were to pay you not 5% but 15% consistently, you might be tempted to put your money in it. In other words, a higher return can make you to invest in a riskier venture.
Since penny stocks are higher risk alternatives compared to regular stocks, the only way they can attract investment is by holding out a promise of higher return. How would a penny stock offer a higher return? This will be done not directly by the stock or the company, but by market forces. The market price of a stock is fixed on the basis of a few factors such as its intrinsic value and the return yielded by it. The market price of a stock divided by the return it gives is known as the price-earnings ratio.
For example, if $10 stocks were to be traded in the market at $20, and the company earns a net income per share of $1, the price-earnings ratio is 20. The price-earnings ratio will be higher for solid stocks that are known to be backed up by good management, have a history of consistent and good performance, and are perceived to be stable. The price-earnings ratio for stocks that are riskier, unknown and do not enjoy a positive perception will be much lower. This means that as against the example of price-earnings ratio of 20 that we assumed for a stable and well-known stock, a penny stock may have a much lower price-earnings ratio, say 3 or 4. Actual figures will depend on a number of other factors also.
Because of this, a penny stock will be priced lower for the same level of net income, and will therefore yield a higher return on the investment.
It is a well-known fact in finance that risk and return have a positive correlation. This means that an investment that carries greater risk will also give higher returns. The reason for this is very easy to understand and is almost intuitive. Suppose you had $10,000 to invest and two options A and B. Option A is a secure government bond that gives you 5% return, while option B is a higher risk investment in a company that will pay you only if it makes profits. Assume that this company has a history of making 5% Profits over several years and is likely to continue on the same lines.
That is, you can expect to get a return of 5% in future years, but that is subject to the company making the same level of profits. Where would you invest your money? If the returns are likely to be the same and if you are a sane person, you would obviously invest in the risk free option. Now suppose, option B were to pay you not 5% but 15% consistently, you might be tempted to put your money in it. In other words, a higher return can make you to invest in a riskier venture.
Since penny stocks are higher risk alternatives compared to regular stocks, the only way they can attract investment is by holding out a promise of higher return. How would a penny stock offer a higher return? This will be done not directly by the stock or the company, but by market forces. The market price of a stock is fixed on the basis of a few factors such as its intrinsic value and the return yielded by it. The market price of a stock divided by the return it gives is known as the price-earnings ratio.
For example, if $10 stocks were to be traded in the market at $20, and the company earns a net income per share of $1, the price-earnings ratio is 20. The price-earnings ratio will be higher for solid stocks that are known to be backed up by good management, have a history of consistent and good performance, and are perceived to be stable. The price-earnings ratio for stocks that are riskier, unknown and do not enjoy a positive perception will be much lower. This means that as against the example of price-earnings ratio of 20 that we assumed for a stable and well-known stock, a penny stock may have a much lower price-earnings ratio, say 3 or 4. Actual figures will depend on a number of other factors also.
Because of this, a penny stock will be priced lower for the same level of net income, and will therefore yield a higher return on the investment.
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