What are penny stocks?

If you're new to the world of investing or have just finished watching The Wolf of Wall Street, you may be wondering about the world of penny stocks. New penny stocks appear and disappear on a regular basis and the fledgling stocks can potentially be undervalued and exciting. While we can't give advice on what penny stocks to buy, as this is a high-risk asset class, we can offer some additional information to help you navigate the complex market surrounding them with more confidence.  

In this article, we'll explore the penny stocks definition and look at what could have been considered by some to be the best penny stocks to buy in the past, so if you have a time machine listen up! The stocks we will discuss here are no longer penny stocks and past performance does not in any way guarantee future results. It is also important to note that penny stock trading can be extremely risky, this article is purely educational and should not be taken as investment advice. Before trading penny stocks or any other asset, it is crucial to do your research and understand the potential risks involved. With that in mind, let's dive in and learn more about what penny stocks are and how to approach them with caution.

Explaining Penny Stocks

Penny stocks are stocks that are generally traded at a low price per share. They are also known as micro-cap stocks, nano-cap stocks, or small-cap stocks. Typically, penny stocks are issued by small, relatively unknown companies and are traded over-the-counter (OTC) rather than on a major exchange like the New York Stock Exchange (NYSE) or NASDAQ. As the name implies, penny stocks are generally priced at a few pennies per share, but they can also be priced up to $5. 

Penny stocks can be very risky and volatile investments because they are often issued by small companies with limited financial and operational resources. These companies may have a low market capitalization, which means they have a relatively small value in the overall stock market. As a result, penny stocks can be subject to wide fluctuations in price, and they may be highly susceptible to market manipulation, fraud, and other forms of misconduct. 

Despite the risks, some investors are attracted to penny stocks because they can offer the potential for high returns. If a company issues a penny stock and then experiences significant growth, the value of the stock could increase dramatically, resulting in substantial gains for investors. However, investors should be aware that the opposite is also true: if a company experiences financial difficulty or other challenges, the value of the stock could plummet, resulting in significant losses. 

Penny stocks can be highly speculative investments that carry a significant amount of risk. As with any investment, investors should conduct careful research and seek advice from a qualified financial professional before making any investment decisions. 

What Penny Stock Should I Buy?

While penny stocks can be highly risky and volatile investments, there have been instances in which some penny stocks have performed exceptionally well - resulting in significant gains for investors. It is possible to do well with a penny stocks, but it is statistically much more likely for investors to lose money. Penny stocks are subject to such a high level of uncertainty that it is impossible to say what the next success story will be. Here are a few examples of penny stocks that have experienced substantial growth in the past (it is important to note that past performance is not a guarantee of any future outcomes): 

• Monster Beverage Corp (MNST): Monster Beverage Corp was once a penny stock, but it has since grown to become a major player in the energy drink market. In 2003, the company's shares were trading at around $0.50 per share. As of February 2023, the stock price has risen to over $100 per share, resulting in enormous gains for early investors. 

• Netflix Inc (NFLX): Netflix was also once a penny stock, trading at around $1 per share in 2002. However, the company has since become a major player in the streaming video market, and its stock price has soared to over $300 per share as of February 2023. 

• Plug Power Inc (PLUG): Plug Power Inc is a company that produces hydrogen fuel cell systems for vehicles and other applications. The company's shares were trading at around $0.30 per share in 2013, but they have since risen to over $14 resulting in massive gains for early investors. Plug is one company that shows the potential for gains from penny stock trading even if the company only ends up being a smaller player.  

It's worth noting, however, that these examples are the exception rather than the rule. For every penny stock that experiences significant growth, there are thousands that fail to perform and result in substantial losses for investors. As with any investment, it's essential to conduct careful research and seek advice from a qualified financial professional before investing in penny stocks.