Penny stocks never go out of style.
Even when share market are falling hard, don't be surprised to see if penny stocks deliver multibagger returns.
Let there be recession concerns or let there be a bear market, these stocks will find a way to surprise investors by rising.
But this is only true for carefully selected and fundamentally strong penny stocks.
On the flip side, if you invest in a penny stock without doing due diligence, you might as well just flush your money down the drain.
We've seen instances where certain penny stocks have eroded 80-90% of wealth in a couple of months.
Penny stocks are usually priced between Rs 1 to Rs 100. Here again, there are certain bifurcations made by retail investors. Penny stocks below Rs 50, penny stocks below Rs 10 and penny stocks below Rs 5.
As these stocks have such a low value, investors think that investing in a low priced stock will multiply their wealth faster as midcap and bluechip stocks will take years to double.
Penny stocks below Rs 5 on the other hand will just take three to four circuits of 20% to double investors wealth.
Mind you, investing in penny stocks below Rs 5 has quite a lot of red flags. Promoter holding may be zero, and these stocks will have no track record of revenues or profits because they are relatively lesser-known stocks.
They might not have as good as dividend paying track record compared to their larger counterparts and investing in these stocks is often considered risky.
Risky because there's no information available on these stocks. They might have a lot of debt on their books, who knows.
But on the other side, the benefit of investing in penny stocks below Rs 5 is that if you invest such a low priced stock which has a face value higher that its current market price, it could work wonders. The market may factor it as undervalued.
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