How to find winning penny stocks

Are you also one of the investors who are tired of hearing that if you had invested ten thousand In the x company you would have earned 1 crore in 20 years. We can understand your irritation because now you want to find that one stock that will make you rich in the coming 15 to 20 years. Don't worry we have got you covered in this article we have put together everything you need to know for picking the penny stock which will be your next multi-bagger.

What are penny stocks?

The stocks that trade for small amounts are known as Penny stocks. These are the stocks of companies with small capitalisation. These are small companies that hold the potential of turning into big institutions. Hence the investment in penny stocks can even offer multi-bagger returns. There is risk involved in penny stocks and that's why it is important to do the necessary research before putting your money.

These stocks are inexpensive hence one can buy them in large quantities to get maximum returns. One can include a small portion of penny stocks and small-cap mutual funds after proper research to take the benefit of fast-growing industries.

How to pick the right penny stocks

Finding the right penny stocks can be quite difficult. As penny stocks are easier to operate there are chances of scams and the risk is involved. But with strong research one can find a winning penny stock.

1. Understand the changing trends in life and the market

It is often said that if you observe your daily life you will find many growth stocks. Similarly, sudden trend change in a particular industry can result in the birth of a new growing and multi-bagger industry. For example, the trend of electronic vehicles has led to good returns from many electronic vehicle-related companies like Tata power due to a sudden increase in demand.

2. Understand companies' financials

While investing in penny stocks the most important thing is to check the company's financials. The company's sales, profit, and plans are what are going to give you returns, so do not forget

to carefully check all the financial documents. A company's debt, return on equity, the dividend is significant aspects that represent the company's financial management so check the different ratios like debt to equity, earning per share, return on equity and many more. You can check all these ratios and fundamentals of the company on the finology ticker.

You can also find stock of your dreams on the finology screener. All you have to do is put your required aspects and you will get the list of companies within a second.

Following are some ratios that can help you to identify stocks with good fundamentals.

● Debt to equity ratio.

This ratio indicates the ratio of equity capital to debt capital. This will help you understand if a company has debt, is desirable or not. You can identify companies with high debt.

● PE ratio

This ratio indicates the ratio of the price of the share to the earning of the share. It helps us to identify if the share is undervalued or overvalued.

3. Invest in companies, not in stocks

Warren Buffet has said that investing in companies and not in stocks. Research about the business you are investing in. Research about their product, business plans, memorandum. If the company is fundamentally strong then it is bound to give good returns. So research well and invest in fundamentally strong companies. After all, it's not stock it's the business idea which is multi-bagger.

Penny stocks are great growth investments if there is proper research behind them. Investing is not speculation so detailed fundamental research is significant. A lot of people put their money in penny stocks just because penny stocks are inexpensive and this often blows away their capital. Last but not least before investing in penny stocks you have to decide if it's right for you. Penny stocks are high high-risk investments and that's why you have to decide if you are ready to take the risk or not. That's all you needed to know about picking penny stocks. Now, what are you waiting for to start looking for your multi-bagger!!