4 Best Tips to Identify Undervalued Penny Stocks

Undervalued penny stocks offer a great deal for investors. These stocks are priced well under their market value, and they are a great investment. How can you determine which penny stocks are undervalued though? Penny stocks are stocks that are traded over the counter, and these stocks do not usually meet exchange requirements for some reason, whether it is because of the lack of history or the financial condition of the underlying company. Understanding how to determine whether a penny stock is undervalued or not does not have to be impossible or include complex equations. There are some steps that you can use to help determine which penny stocks are undervalued, and which of these stocks should be avoided.

Tip #1. The financial health of a penny stock is one aspect used to identify undervalued penny stocks. This is true of both American and Canadian penny stock choices. Do some research and know how much working capital and how much debt is carried by the company. The best penny stock pick is one where the company uses the money from investors to grow, and not just to meet business expenses. This is a sign that the company has growth potential, and that the investor will see decent returns from the penny stock usually. The way that the company uses proceeds from the stock offering can also help you determine whether the penny stock is undervalued or not. If the initial public offering funds are used for company growth and expansion, this is a sign that this stock may be a best penny pick stock. Be wary of any company that uses funds from the public offering to make loans to company insiders, or for other purposes that will not help the company expand and grow.

Tip #2. Research the management of each of the rocket stock picks. Look at the experience level and the background of all company directors and officers, to ensure that the company management team is qualified and has the right experience to lead the company, and the penny stock, to a higher value. Experience can be an important factor, and verify that the directors and officers of the company have experience in that specific field, and not an unrelated one.

Tip #3. Do a product analysis for the underlying company of the penny stock you are considering. This will help you determine whether the penny stocks are undervalued or not. Determine exactly where the product is in the develo

pment process. Look at the prospectus carefully, and make sure you know what the money being invested is for. Is it used to market a new product, or to finish developing a product that may be years away from the consumer. You need to look at the length of history for the company, as well as what the history shows. Penny stocks which represent brand new companies have much higher risks attached. Undervalued penny stocks will represent companies that have no lawsuits or liabilities, so do thorough research to ensure this is the case. Look at any trades which could be considered a conflict of interest, like large numbers of free shares being given to promoters and company insider.

Tip #4. Determining which penny stocks are undervalued will allow you to invest in quality penny stocks, and not lose money because of scams or other problems that can occur with these stocks. An undervalued penny stock is a terrific investment opportunity, but you must be able to determine which penny stocks are accurately undervalued and which are better left untouched.

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