Penny Stocks: What Factors Affects these Stocks?
Many investors believe stock prices, especially the low-priced shares are affected by acquisitions, massive contract agreements, new customers and corporate earnings.
Well, they are right. However, there’re several other drivers that steer penny stock prices. Some are overlooked while others are simply misunderstood.
In this article, we’ll take a closer look at some of these factors.
1. Company Growth
Growth in all aspects is good news for any investor. This includes increased revenues, an expanding market share, as well as a growing customer base, are all indicators of a growing company. With such growth, you can expect the same to reflect in the share price.
Such growth on multiple fronts is worth more than growth in a single sector. It doesn’t mean growth in a single sector isn’t good. It’s just that concerted efforts elevate the company to greater heights faster.
2. Industry Expansion
Do you remember how the .com era shot multiple companies to success? Well, this is what happens when a company is associated with a growing industry. It’s more like moving in the direction of the wind.
Market share largely determines company growth and increase in this aspect will translate in their revenues. While acquiring shares in a company growing at a fast pace is great for you, it even better if the company is in a growing industry as well.
In fact, with industry growth, the businesses in the sector will also seem as though they’re growing even if they encounter difficulties.
The best strategy is to invest in a company with a small penny stock which has the potential to gain a huge market share over time.
3. Media Hype
Stunning headlines. It’s what the media love and once they pitch camp on a certain topic as they did with Marijuana penny stocks, they drive investors toward these stocks. As a result, due to the investor stampede, the share price of the penny stock goes up.
If a story attracts the attention of the media, then to the investors it only means the investment is lucrative. Once it hits the news, penny stock promoters will pounce on these stocks with the aim of making a profit.
Tread with caution when relying on promoters but you can find a some of them using this penny stock promoters list.
4. Trading Imbalances
This occurs when there’s either too much buying than selling or too much selling than buying. While these imbalances may not affect the company’s operations, they can establish themselves due to investor timing.
This is the case with penny stocks. As you’d expect, low-priced stocks will have few buyers or will have few sellers. With such thin trades, you can expect trading imbalances.
For example, if a trade sees $4,000 worth of trade the entire day and one person decides to dump $20,000 worth of stock in a minute, then a technical imbalance is definite. This is because the market will not have enough buyers to dissolve the $20,000.
This will affect the share price as well, but after resolving the imbalance, the share price will get back to its normal levels regardless of the time it takes.
With these factors in mind, you have the potential to spot opportunities faster than other traders. However, keep in mind that these factors may not all be present in penny stocks at all times, but they may come into play at certain times. These times provide the best opportunity to sell at a great profit or buy a favorable discount.