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5 Ways to Find Undervalued Penny Stocks

  • All penny stocks can be evaluated to determine if they are overvalued or undervalued
  • Hot penny picks can help you locate undervalued penny stocks to invest in
  • Undervalued penny stocks can help you with successful penny stocks investing

All penny stocks carry some risks, just like any other stocks, but there are ways that you can lower these risks. One of the bes methods of penny stock investing is to find undervalued penny stocks. These stocks have a better chance of increasing in price, because they are valued at more than the share price listed. There are some tools and tips that can help you find the best hot penny stock picks that are undervalued and can go up in value significantly in the near future. Finding undervalued penny stocks may take a little time and effort, but the results can be well worth it.

1. Evaluate The Price To Earnings Ratio

Wise penny stock investing means evaluating penny stocks to find those that are undervalued, and the price to earnings ratio can help with this. This ratio will allow you to determine how much investors in the market are willing to pay for each dollar of earnings from the company. The higher this percentage is, the more desired a stock is and the better the odds are that it is a terrific investment. The exception is if this ratio is extremely high, because this could be an indication of a market bubble that is almost ready to burst. A very low number can indicate an undervalued stock.

2. Look At The Financial History Of The Company

The financial history of all the penny stocks that you are considering should be researched and evaluated. Look back at least five years if possible, but this is no available in every case. Make sure to go back at least four quarters and preferably farther. Even if the stock is an IPO, previous company information should be available for this analysis from before the company went public. If the stock price is low compared to historical price data, and the substantial value of the company is still the same, the penny stock may be undervalued.

3. Compare The Current Stock Price With Analyst Values For The Stock

Hot penny stock picks which are undervalued will normally be priced lower than the value placed on the stock by analysts and experts. This is not always true, because even the experts can be wrong once in a while, but normally this is the case. If you are interested in a penny stock, and most analysts and advisors have the value listed higher than the current price, now is the time to buy. Analyst predictions can cause changes in the market, and the value could rise significantly simply because of these predictions. Only buy if the stock is a quality penny stock though, to ensure some value in your investment.

4. Look At The Year Over Year Growth Rate For The True Penny Stock Value

The year over year growth rate of the penny stock and company is another key to finding undervalued stocks for smart penny stock investing. This method has less volatility involved, so you get more accurate information and can make better investment choices. This is also called the Compound Annual Growth Rate, or CAGR. This formula allows you to determine what the investment growth rate would be if the company and stock grows at a steady rate. This represents the annualized gain if the returns annually are smoothed out.

5. A Low Debt To Equity Ratio Can Identify Undervalued Penny Stocks

Looking at the debt to equity ratio for all penny stocks you are considering can help you locate penny stocks which are undervalued and can be a smart investment. If a company and stock has a low debt to equity ratio it is very possibly undervalued, and worth more than the market price reflects at this time. This equation is extremely helpful in finding the top quality penny stocks that are a good investment, and weeding out unsuitable stocks in companies that carry high debt.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.

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