Two Important Things To Look For When Buying Penny Stocks

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Penny Stock Research
Two Important Things To Look For When Buying
Penny Stocks
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• Hi, My name is Aaron and Im with Penny Stock
  Research, today were reviewing our recently
  published article

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• Two Important Things To Look For When Buying
  Penny Stocks

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• Buying penny stocks isnt the easiest thing to do
  in the world at least not if you want to be
  successful. Sure, you can go out and buy the
  latest penny stocks getting pumped like crazy.
  But, thats bound to end badly.

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• You could also buy penny stocks based on their
  narratives. This one is a gold producer and
  golds going up! That one is a rare earth miner,
  and we need those minerals for cell phones!

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• Sometimes buying the hot industry/product can
  work but it too will usually result in losing
  money. So then, what can we do to improve our
  chances of finding a good penny stock company?

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• First off, lets look at what not to do. Heres a
  look at what gold has done over the last five
  years

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• As many of you probably remember, gold spiked to
  all-time highs in 2011-2012. There was a major
  gold buying frenzy among institutional and retail
  investors alike. Even central banks were loading
  up on bullion.

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• Once the financial crisis stabilized and the US
  economy began to recover, gold prices fell to
  pre-crisis levels. And, theyve been hovering
  around 1,200 ever since. Heres the thing

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• Back during golds peak, there were countless
  penny stock companies claiming to be the next big
  gold miner. It seemed like every new company out
  there owned property which may contain a mother
  lode.

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• Funny thing is, many of these companies were
  doing nothing remotely related to gold mining
  before the price spike. Some of these companies
  were social media experts and others were
  selling non-stick cookware.

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• Basically, there was no reason to believe these
  companies could mine gold, even if their
  properties contained the precious metal. And, if
  you investing in any of these gold companies
  chances are you lost big.

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• So what do you look for when buying penny stocks?

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• Like most any other type of investing, you need
  to do your research before buying penny stocks.
  Fundamental analysis is equally important on
  small companies as it is on large ones.

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• You just need to shift your expectations to take
  into account the size and age of the company.
  For instance, a newer, smaller firm isnt likely
  to be very profitable if at all early on.

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• Thats especially true for a development stage
  company. By the same token, a small firm
  shouldnt have a big debt load either. Some debt
  is normal, but a ton of debt early on is
  certainly a red flag for a penny stock company.

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• Here are two things you should look for when
  researching penny stocks.

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• First off, its always a good idea to find a
  company with cash. A company that has
  raised/saved a fair amount of cash is usually
  well managed, and not a fly-by-night type firm.

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• Cash can be used to grow, expand, take on
  reasonable debt, withstand slow periods, etc.
  Its obviously a vital asset for a small company.

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• Typically, I like to see a reasonable amount of
  cash versus no debt, or a lot of cash versus
  moderate debt. The other thing to look for is a
  positive operating margin.

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• Operating margin is revenue minus cost of goods
  sold, minus expenses. Unlike profit margin,
  operating margin includes expenses such as admin
  and marketing.

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• After all, you cant run a business without those
  things, so why look at metrics which dont
  include them?

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• On the other hand, for a small business, paying
  attention to net profit is not that important.
  Taxes, interest, etc. just dont mean that much
  at this stage (unless were talking about a huge
  debt load, as I mentioned earlier).

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• Meanwhile, operating margin does a very good job
  of showing if the core business is producing good
  results. And, thats by far the most important
  thing to consider for a penny stock company.

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• By paying attention to cash and operating margin,
  you can go a long way towards finding penny
  stocks worth buying. It can also help you avoid
  the pitfalls of having the really bad penny
  stocks end up in your portfolio.

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• Investing in companies with a decent cash holding
  and positive operating margin will help direct
  you to the best-in-class penny stock companies.

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