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Undervalued Penny Stocks – 3 Tips to Finding Them
There is nothing better than an undervalued penny stock. You can double or even triple your earnings with them. BUT, you must be able to determine which penny stocks are accurately undervalued and which are better left untouched. If a stock is selling for $50, but can be determined to be worth $100 based on predictable future cash flows, then it is an undervalued stock. These 3 tips will help you find them.
TIP 1: A Low Debt-To-Equity Ratio
The debt-to-equity ratio (D/E) is a ratio indicating the proportion of shareholders’ equity and debt used to finance a company’s assets. The two components are taken from the firm’s balance sheet. The ratio may be calculated using market values for both, or using a combination of book value for debt and market value for equity. If a company has a low D/E it may be an undervalued penny stock. This equation is extremely helpful in weeding out unsuitable companies that carry high debt.
TIP 2: Evaluating The Price-To-Earnings Ratio
The price-to-earnings ratio (P/E) of a stock is a measure of the price paid for a share relative to the profit earned per share. It is a ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of profit, so the stock is more expensive compared to one with lower P/E ratio. The P/E ratio shows investor demand for a company share. The higher the percentage, the better the odds of that company being a great investment. One exception to this rule: If the P/E is extremely high, it could be an indication of a market bubble that is almost ready to burst. You don’t want to be holding shares when the bubble pops. A very low P/E can indicate an undervalued stock.
TIP 3: Compare The Compound Annual Growth Rate
The Compound Annual Growth Rate (CAGR) is a term used to describe the growth over a period of time of some element of the business, for example revenue. This formula allows you to determine what the investment growth rate would be if the company grows at a steady rate. Because CAGR lessens the effect of volatility of sporadic returns and represents annualized gain if the returns are smoothed out, you get more accurate information and can make better investment choices.
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Tags: Finding, Penny, Stocks, Undervalued
View this post on my blog: http://stocktips.valuegov.com/undervalued-penny-stocks-3-tips-to-finding-them/
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