By Chad Kettering
When trying to assign a value to a penny stock, one of the factors to look at is the cash per share that the company has. The cash per share is a public number you can find by going to an online finance site or within a brokerage account you may maintain. By looking at the profile of a reporting company, you should be able to see how much cash per share the company has. Many companies that are struggling still have large cash reserves from previous operations.
Let's use the example of ABC Corporation, a small electronics manufacturer. ABC's current strategy may be faltering because of a recent loss of a big contract. Although ABC no longer has that particular contract, it maintains a $2,000,000 cash reserve from earnings derived while servicing that contract. The $2,000,000 could be used to secure additional contracts to increase its earnings. The cash reserves could be used to start another business or to acquire an existing business. Cash is the most valuable asset a company can have due to its liquidity. If ABC Company has 1,000,000 shares outstanding, it would have cash per share of $2. Many companies in this situation are trading for under their cash value since investors ignore the cash at hand and just focus on the short-term situation of the company. The experienced investor knows that company is an attractive acquisition candidate. Any acquirer can buy the company for $1 and use the cash per share for further business ventures. It would be like going to the bank and withdrawing $10,000 for only $5,000.
Another valuation method is to value a company by the multiples of sales it sells for. This is called sales per share, which is simply the sales of a company divided by the number of shares. At $1 sales per share a $2 stock is selling for twice its sales. Compare that number to other stocks in the same industry and see which stock sells for a lower sales multiple. The stocks with the lower sales multiple would be considered a better value according to this method. Now, many of the best penny stocks do not have sales so you may have to use alternative methods such as book value, PE ratios, market cap and the size of the float to help determine a company's stock value.
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ReplyDeleteI have a web site where I give investment advise on penny stocks and stocks under five dollars. I have many years of experience with these type of stocks. If theirs anyone thats interested in these type of stocks you can check out my web site by just clicking my name. I would like to comment about how to value a penny stock. I find their are many penny stocks trading between 1 dollar and five dollars that are sometimes really great bargains. I find that most of the stocks trading under 1 dollar are not.
ReplyDeleteI have a web site where I give advice on stocks under five dollars. I have many years of experience with these type of stocks. I find that the best measurement of how much undervalued a stock is is the price to sales ratio of a companies stock. the price to sales ratio is the market cap of a companies stock compared to the amount of sales the company does on an annual bases. A good example of a company with a low price to sales ratio is carrols restaurant group the company has a market cap of just 215 million dollars but does over 825 million dollars in annual sales annually the company is profitable. In other words the price that the market is valuing the company at is 215 million dollars this is only one fifth of what the company does in annual sales 825+ million dollars. The stock currently trades at around 9.75 cents a share under the symbol {TAST} I think the stock could get to 50.00 dollars a share over the next five years. I base this on the current net profit margin of around 1.75% or 14 million dollars on sales of 800 hundred million dollars. if the companies sales were to increase by 50% or 400 million dollars to 1.2 billion dollars over the next five years. And if the companies net profit margin were to expand from 1.75% to 5% or 60 million dollars over the next five years. than if the companies stock increased in price to where it was trading at a price earnings ratio of 20 this would put the stock at 40 dollars a share. this may seem to be a somewhat optimistic scenario but not really that much. there are many stocks that trade at much higher price earnings ratios when they become popular than 20 times earnings. I find that companies like carrols restaurant group are very rare. I also find that companies that have low price to sales ratios that are profitable or of decent quality tend to become takeover targets or get taken private by private equity firms or the management of the company. or other companies in the same business.
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ReplyDeletePenny Stock Dream is not your usual penny stock picking website. We are a team of analysts and investors in the field of selecting penny stock picks. We have gotten used to seperating the ordinary from the extraordinary when it comes to the stock market, especially when it comes to researching and reviewing penny stocks trading on the OTC Market and Pink-Sheets exchanges.
ReplyDeletePenny Stock Dream is not your usual penny stock picking website. We are a team of analysts and investors in the field of selecting penny stock picks. We have gotten used to seperating the ordinary from the extraordinary when it comes to the stock market, especially when it comes to researching and reviewing penny stocks trading on the OTC Market and Pink-Sheets exchanges.
ReplyDeletePenny Stock Dream is not your usual penny stock picking website. We are a team of analysts and investors in the field of selecting penny stock picks. We have gotten used to seperating the ordinary from the extraordinary when it comes to the stock market, especially when it comes to researching and reviewing penny stocks trading on the OTC Market and Pink-Sheets exchanges.
ReplyDeletePenny Stock Dream is not your usual penny stock picking website. We are a team of analysts and investors in the field of selecting penny stock picks. We have gotten used to seperating the ordinary from the extraordinary when it comes to the stock market, especially when it comes to researching and reviewing penny stocks trading on the OTC Market and Pink-Sheets exchanges.
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