Characteristics of Best Penny Stocks

Penny stocks are excellent for making quick money if you play your cards intelligently. If you do not happen to do that, you may lose it pretty easily as well.

New York, NY (prHWY.com) June 28, 2012 - Penny stocks are excellent for making quick money if you play your cards intelligently. If you do not happen to do that, you may lose it pretty easily as well. Availability of right type of information is the key behind milking them successfully. Following few lines will be helpful in understanding characteristics of best penny stocks.

Price to Earnings (PE) Ratio

The price to earnings ratio indicates how much an investor makes a payment for the profit of the company. This ratio can be calculated by dividing stock price with earning per share. This is a pretty common figure in stock trading world and if you want to make it big in share trading, it is essential that you get used to it.

As and when you have calculated this figure, make its comparison with other stocks. It would be a good idea to compare it with that of shares in the same industry as well as better performing ones. The result will give you a fair idea about whether to proceed with it or not.

PE to Growth Ratio (PEG)

The ratio of PE to growth is another good indicator of how well the share is going to perform. Calculate it by dividing Price to Earnings Ratio with the projected growth over the next five years and notice that lower the ratio, better it is as it indicates higher growth. PEG ratio over 1.0 is not considered good at all and you must always go for the one that has a low PEG.

Cash Flow

Cash flow is the amount of money that flows into or out of a business. It is a strong indicator of performance of a company and must be analyzed pretty thoroughly before making any investment. It is quite prudent to look for companies that have generated a significant flow of cash over a certain period of time. Avoid those who have a lot of debt and keep tiny stocks to below five percent of your portfolio to minimize risks.

Profit Margin

Health of state of affairs of any company can be gauged by its profit margin. Companies with a higher profit margin ought to be preferred over those having comparatively lower profit margin. This figure can be calculated by dividing total annual profit by total annual sale; higher the margin, better the company.

Trading in penny stocks can be a tricky issue. But picking up best penny stocks ought to be easier now after reading above mentioned tips.

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