Penny Stocks and Small Cap
What are Penny
Stocks and Small-Cap Stocks?
There is no set accepted
definition of Penny Stocks or Small-Cap Stocks. The following definitions are
for the purpose of this web site only. Our definition of a Penny Stock is not
dependant on the price at which it trades (although many refer to any stock
under $5 as a penny stock) but rather the total market cap. We
define a Penny Stock as any security trading with a market cap of less than one
hundred million dollars regardless of which exchange it trades on. We also
profile small-caps with a market cap of less than one billion. Our profiles may
trade on any exchange to include the NYSE, Nasdaq, AMEX and OTC-BB.
SmallCapReview strives to profile companies that otherwise would not get the
exposure a larger cap with many analysts might.
market cap looks like this:
Micro Cap/ Penny
Stock: Any stock with a market cap less than $100 million.
Small Cap Stock:
Market Cap between $100 million and $1 Billion.
Mid Cap Stock:
Market Cap between $1 Billion and $5 Billion
Large Cap Stock:
Market Cap over $5 Billion.
Penny stocks are for the most
part not traded on a stock exchange, but are traded on the over-the-counter
(OTCBB) bulletin board market.
The NASDAQ OTCBB system has
listing standards that change from time to time and depending on the standards,
there may be more or fewer penny stocks on the OTC. If you purchase a
low-priced security that is listed on the OTC, it will have met certain
minimum standards. In addition, many OTC prices are quoted regularly
in newspapers and on the net, allowing you to follow the price of your security
instead of forcing you to rely on your broker for all price information as may
be the case with pink sheet stocks.
Legitimate Penny Stocks
There are many legitimate companies whose
securities trade on the OTC at very low prices. Struggling young companies
just starting out are perfect examples. Investment in such a company, held
through the company's formative years, can pay off well. Such an astute
investment requires three things: the ability to choose the right company, the
capital to invest and hold the investment, and a little luck.
In order to choose the right company, you must
know something about the business in which the company engages. You must be able
to evaluate the feasibility of the company's business plan and the company's
ability to compete in its field of endeavor. You must be able to evaluate the
ability of the company's management to run the company. Finally, you must be
able to evaluate the capitalization and cash flow of the company.
Decide your strategy before buying a stock.
With the prolific increase in the number of day traders many stocks and the
market in general have become very volatile. Subsequently, many will invest for
short term returns. This is certainly your right and can be a profitable
strategy. Alternatively, if you find the right company, you must be
willing to invest long term to allow the company to mature and for the stock to
appreciate in value. Investment in "growth" companies is normally a
long-term investment. Furthermore, you must have sufficient capital to be able
to withstand total loss of your investment. Investment in emerging companies is
always a high-risk investment.