How do you determine if a penny stock is undervalued

Jump to Last Post 1-5 of 5 discussions (9 posts)
  1. thecollecktor profile image63
    thecollecktorposted 8 years ago

    It is my intent to discover the formula for investing in penny stocks that goes beyond the hype currently being used.  What criteria do you use?

    1. imichelle profile image69
      imichelleposted 8 years agoin reply to this

      I read 10k statements and look at a company's return and dividend history.  I also look at whether or not they are a growing company (increased revenue and profit) or if they are a failing or concept level company (no revenue or profit).

      There is no formula or hype to choosing a good penny stock.  There are good ones but they are like any other stocks; you want to choose companies that are financially solid and make profits.

    2. Mr Tindle profile image76
      Mr Tindleposted 8 years agoin reply to this

      It is extremely difficult to determine the value of penny stocks. Many don't have any value at all, and are simply frauds from the beginning. But if you must take the risk........

      I would start by looking at the book value of the company and quality of the reported assets that make up the book value. For example, Do they have Cash and Liquid assets or is it made up of intellectual property which can be subjectively valued and is not necessarily liquid (easily converted to cash)? Also what are their liabilities in comparison to assets?  Are they in debt up to their ears?

      Also what are the liabilities to you the shareholder? By this I mean, are they printing stock like the Fed prints money to stay afloat? Do they have agreements with management and select shareholders to allow for share dilutions to take place in the future?

      Also look at sales and profit. Are they profitable? Are revenues going up or down? By how much? You obviously want profits, cash flow, and revenue to be making progress.

      Lastly do thorough research on the company and their services or product being offered and the background of their management. Talk to people that have actually used the products and services. Use them yourself. This will be a good way to uncover frauds right away. It will also give you an idea of the potential for the particular penny stock as a long-term investment.

      I would probably say that penny stocks are better for trading short term, but if you are going to invest long-term I would follow the above approach closely.

      Hope this helps!

      1. profile image47
        korosakiposted 8 years agoin reply to this

        This Penny Stocks Formula service is available right now if you’re ready to transform your trading.

    3. fundguru profile image59
      fundguruposted 8 years agoin reply to this

      Generally you will have to know Accounting to be able to understand the figures in the balance sheets. If stock companies do not publish them, then you should not invest at all. Generally also be cautious dealing witth pink sheets such as OTC stocks.

      Well but there are few penny stocks, often from Asia, that are real companies in the start up process. It sometimes isnecessary to read what they are trying to do and maybe also to contact them in order to see if they know what they are talking about or if they are only dreamer.

      Neverheless I would not advise to invest much in one stock alone, does not matter if pennystock or bluechip. You will always need a diversified portfolio if wish to achieve long term profits.

      If you just want to gamble then better go to a casino.

    4. thecollecktor profile image63
      thecollecktorposted 8 years ago

      Thank youfor your well thought out answer.   It is very much appreciated and great to remember when we invest in stocks.

    5. LennyP profile image78
      LennyPposted 8 years ago

      The hype is the biggest factor with penny stocks. Any volume of buying or selling is going to affect the price rapidly. If you find one that you think is truly a solid investment it's true value will take much longer to firmly establish itself with a penny stock. If you have yet to learn how to evaluate stocks I suggest you start with ones from the major indexes as they are much less volatile and easier to grasp. Penny stocks are not actually any cheaper and have a much greater chance of reaching zero making them potentially much more expensive.

    6. dpsimswm profile image59
      dpsimswmposted 8 years ago

      I've invested in several penny stocks. AHR, GNW, FNMA, and FMCC.

      AHR was a loss. I was relying on the reported book value per share, which was overstated.  I should have sold earlier, as the company was letting their debt default and that should have been an indication that the book value was overstated.

      I bought GNW at $1.59.  I also relied on the reported P/B ratio which was about .25 at the time.  In this case, Genworth was actually making their debt payments and communicating with investors.

      I currently own 36,000 shares of Freddie Mac preferred stock. These shares were delisted in July 2010.  I don't recommend buying the common stock of these companies, but I do believe that they have unrecorded tax assets, which could be recognized before the government exits their position.  In the case of Freddie Mac, the amount is $32.9 billion.  This number can be found in the Notes to the 10Q.  If the government allows private shareholders to retain 20.1% of the company, then junior preferred shareholders should get about 40% of par value from these tax assets.

      If you are going to invest in penny stocks, do your due diligence.

    7. Xgains4keeps profile image37
      Xgains4keepsposted 8 years ago

      Indeed just as some of the people who have posted replies noted, if they do not have any published reports do not buy. Yet many if not thousands of investors can tell you they have made alot of money trading pennystocks, its a gamble just like any other type of stock. The important thing is to make the decision to buy what ever you want buy yourself, there is alot to learn from your gains, failures and losses. Sign up to and get some enlightenment.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)