"In the past, penny stocks were considered any stocks that traded for less than one dollar per share. The U.S. Securities and Exchange Commission (SEC) has modified the definition to include all shares trading below five dollars. The SEC is an independent federal government agency responsible for protecting investors as they maintain fair and orderly functioning of the securities markets.
Penny stocks are usually associated with small companies and trade infrequently meaning they have a lack of liquidity or ready buyers in the marketplace. As a result, investors may find it difficult to sell stock since there may not be any buyers at that time. Because of the low liquidity, investors might have difficulty finding a price that accurately reflects the market.
Due to their lack of liquidity, wide bid-ask spreads or price quotes, and small company sizes, penny stocks are generally considered highly speculative.
*Below message is copied*
“I don't agree with people who are criticizing about penny stocks. In a stock market there are different type of stocks representing different sectors.
What we should look in to before buying a share is not directly it's price, but should see whether the fundamental value of that share represents the price.
How can we say don't buy low priced shares & go only for high priced shares. That's not ethical & it's not fair by the low priced share companies....End of the day what matters is the profit that you generate genuinely by not publishing false information.
Sri lankan's have clearly have no idea of what is the real penny stock means & why is that stock is riskier than other stocks in the market.”
-Quoted by Wall Street (TEC)
(30 Years of Experience in CSE)
Penny Stocks in Srilankan Context
01. Lack of liquidity or trade infrequantly ( Over 90% of CSE listed low valued stocks have very high level liquidity.)
02.Since low liquidity investors find it difficult to sell.( In CSE many high value stocks are not liquid. They are the shares that have more risk in CSE..... Not the so called penny stocks...
03.Wide spread of "Bid" & "Ask" price due to low liquidity...... So if the share is not appreciating as expect by the investor when he decides to sell buyers are at very low bids, that is again due to low liquidity.
(In CSE most high value stocks have that status.... Even if you take these days hot stocks like DIPD/ HAYC (with due respect to all the share holders) see how wide spread the "Bid" & "Ask " prices are.
04.Penny stocks means stocks of smaller companies which does not have larger market share or start up companies.....
*Can any body explain me Is GLAS a penny stock??? which is having the largest market share for glass ware in SL.......
*Is EXPO a penny stock?? One of global giants in transportation....
*Is RAL a penny stock??? Which has a world wide client base & wide market share in SL.
* Is RICH once categorized as a blue chip company before the share split, Now a penny stock in CSE?
*Is CFLB a 40bn turnover company in CSE which owns the largest & the most successful distribution network in the country is a penny stock???
*Is SIRA a penny stock?? which is the third largest cable manufacture in SL??
*Is VPEL a penny share? Largest hydro power company in SL..
*Is DPL a penny share?? which has lots of international clientele & the largest manufacture of porcelain products in SL
*Is BIL / CLC / SCAP /penny shares in CSE???
05.If you buy on margins & invest in shares if something goes wrong even if you invest in what sort of shares you have a chance of making a loss more than that of the investment..... It happens to the investors in CSE in the past & investors who invested in low valued stocks only managed to sell their shares at a minimum loss.
06.In CSE you have very low valued shares which have very high level of liquidity. In most occasions or 99% you can see 'Bid" & "Ask" price difference is only 10cents or 20cents.....
*I also can't understand why people just blindly under estimate low valued shares in CSE. More than 90% of low valued shares in CSE have very high liquidity. Because of that only their share prices trade at lower levels & once they managed to report above average profits their prices starts to improve rapidly... Ex--- EXPO..
*In present scenario prices of many shares are going up because of the expected future earnings.... Sometimes until reports comes out these shares may trade with high multiples....But with the future performances these share prices will get adjust according to their fundamental values....
Eg - GLAS / TYRE.
(These two companies have managed to report very good profits for the Sep Q20 as expected by the share holders)
*Just see the NAV/EPS of NEST & the trading price.....
*Just see the EPS/ NAV of CFVF & the trading price......
*Just see the EPS/NAV of banks such as SAMP/ HNB/DFCC/COMB & the trading prices....
*Many research houses gave buy orders for SAMP above Rs300/ levels about couple of years back & just imagine the plight of those investors who had purchase SAMP on margins. SAMP is not a penny stock in CSE but a but a top blue chip company
In conclusion don't blame low valued stocks without knowing the facts correctly.
Advise for New comers -
01.When investing see the fundamental values of the share
02.See the business that they operate in.
03. Just see you can understand the business.
04.Check the future business potential of that company/ mkt share/ products available/management
05. Check the dividend paying history.
06. Check the volumes trading - daily/weekly
07.Read business news articles in papers/ Read ARs / Go through QRs
08. Check the last 10 year performances
09.Guess future profits by your self & cross check it with actual figures once uploaded in CSE. Then you can get an idea of your evaluation skills.
10. Don't purchase on credit or margins.
Originally Posted by Wall Street