One of my friends is fond of penny stocks. He loves low price stock. He is a master in identifying such stock. He made a lot of money in penny stock. Sometimes he loses money also. He is gujju baniya and calculative about money. This year he invested his money in Anjani Foods and made multibagger gain this year. I asked him about his secrete of identifying penny stock. I got a few glimpses of that and I thought to share with you all.
So, here is detailed information about what are penny stocks? Which are the key features of penny stock? How to identify penny stocks? and information about penny stock that have become multibagger in 2020.
What are Penny Stocks?
Penny stocks are low market capitalization stock available at a very low price. The price range of penny stock in India is Rs.0.50 to Rs.10. These types of stocks are illiquid. The fundamental and business model of these types of stocks is very weak. However, penny stocks can turn out to be multibagger in a short period.
Key Features of Penny Stocks
Low Cost – Penny stock is priced lower than Rs.10. As these types of stock are available at a lower cost one can purchase a large chunk of stock with a very small investment.
Illiquid Stock – Penny stocks are illiquid. There are very less numbers of buyers in this stock. So, it becomes risky to invest in these types of stocks.
Unpredictable pricing – The price of penny stock is unpredictable. The stock can move up or can move down at any time. You may end up losing money in these types of stocks.
Limited Information – Most of the companies are startup companies. Very limited information is available about these companies in the public domain. Investing in such companies is very risky.
No Track Record – As these companies are relatively new very limited or no historic information available for these type of stocks.
Risk of Delisting – Penny stock can be delisted by SEBI any time. There are many instances where stocks are delisted due to non-compliance or poor management.
How to identify penny stocks?
Steps to identify penny stock for investment are given below.
Follow the steps given below to identify penny stock.
- Find out the screener that will help you to identify low-cost stocks. You can use NSE website and find out these details.
- From the shortlisted low-cost stocks find out stocks that are most active. You can get this information by looking at volume transaction of stock.
- Now you need to check the fundamentals of the stock. First check the financial of the company. You will get this information from annual or quarterly reports.
- After evaluating the financial of the company, analyze the fundamental ratios. You should look at important ratios such as price to equity ratio, debt to equity ratio, market capitalization, return on equity, price to book ratio, earning per share etc. The fundamentals will help you to know the financial health of the company.
- You can also go for technical analysis to find out the current trend of the stock. You need to buy the stock at the beginning of an uptrend and sell the stock at the beginning of a downtrend. It is a very important point.
Don’t invest money based on tips or recommendations by non-trusted sources. You need to do due diligence before investing in penny stock.
You can create your own scanner/screener to analyze which stock is best for you. There are many scanners available in the market. I would recommend using Zerodha Streak or Screener. These screeners will help you in finding good penny stock faster.
Penny Stock to Multibagger Stock in 2020
#1 Anjani Foods
Anjani Foods is best penny stock of 2020. Anjani Foods is retailer and bakery product distributor. The company has started operation initially in finance sector. The market capitalization of Anjani Foods is 59.22 Cr. The price of Anjani Foods in Jan 2020 was Rs.5 and in Dec 2020 stock is trading at Rs.105. This stock has given multibagger returns to the investor in one year. CAGR return of this penny stock in 2020 is 2000%.
#2 Network Ltd
Network Ltd is consumer good company. The market capitalization of Network limited as of Dec, 2020 is 27.57 Cr. It is risky stock for investment. The price of Network ltd in Jan 2020 was Rs.1 and in Dec 2020 stock price is Rs.5. This penny stock has generated 400% CAGR return for the investor in 2020.
#3 SPEL semiconductor limited
SPEL semiconductor limited is computer hardware company. The market capitalization of SPEL is 71.4 Cr. The price of SPEL in Jan 2020 was Rs.3 and in Dec, 2020 stock price is Rs.15. This stock has generated 400% returns to the investor in 2020.
#4 Tirupati Tyres
Tirupati Tyres is tyre company. The market capitalization of Tirupati Tyres is very less 0.70 Cr. The price of Tirupati Tyres in Jan 2020 was Rs.1 and in Dec,2020 the price is Rs.2. This means it is one bagger stock.
HDIL is real estate development company. The market capitalization of HDIL is Rs.383 Cr. The price of HDIL in Jan 2020 was Rs.4 and in Dec, 2020 the price of HDIL has reached to Rs.8.
Should you buy penny stocks?
The above stocks have generated multibagger returns that does not mean that these penny stocks are good for investment. Remember, penny stocks are like double edge sword. You can earn multibagger return as well as you can lose entire money in this stock.
Investing in penny stock is like gambling. You are investing money in the company with no fundamental in the hope of earning a big return. If you are new to stock market, or conservative investor you should stay away from penny stock.
If you have a lot of surplus money you can go ahead and invest in the penny stocks. The risk is yours, you may lose entire money. The decision of investing penny stock is entirely up to you.
Do you invest in penny stocks? Can you share few promising penny stocks in the comment section given below.
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