- Penny stocks generally suit investors who have high-risk tolerance and are not risk-averse.
- As most retail investors cannot afford to buy large quantities in blue-chip stocks, they turn towards penny stocks
- Penny stocks can be a solid high-growth stock if the fundamentals and governance of the company are promising.
Penny stocks or penny shares are those stocks that trade below £1 on the stock exchange for a decent amount of time and have a market cap of lower than £100 million. Penny stocks are usually of small companies and trade infrequently, which implies less liquidity. This result in wide bid-ask spreads, which can hurt an investor while buying or selling shares. These stocks generally suit investors who have high-risk tolerance and are not risk-averse.
Penny stocks always keep buzzing, and are there some reasons for it. The best strategy regarded to be successful in the market is 'buy low and sell high.' As most retail investors cannot afford to buy large quantities in blue-chip stocks, they turn towards penny stocks, giving them the illusion of a higher return as penny stocks have high volatility, resulting in a higher potential for reward an even higher level of inherent risk. Penny stocks can be a solid high-growth stock if the fundamentals and governance of the company are promising. The best example is Amazon which traded under $2 when it was listed in 1998. If investors look at the company's fundamentals and then place a bet, they would significantly increase the odds of them winning.
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Let us explore three penny stocks that have been buzzing through the pandemic and have given handsome return to investors in the last one year:
ValiRX PLC (LON: VAL) operates basically as a life sciences company. The company mainly focuses on primary stage-associated biomarkers and therapeutic development. They work in the sale of Self-Test Drug Kits and Drug Development.
Recently, they have entered into a new agreement with Physiomics PLC for working towards the growth of prostate cancer treatment. Company’s Earnings have grown by 7.1 per cent on an average over the past five years.
The current share price is GBX 20.00 (as of 11:11 AM GMT+1 on 4 May 2021), and the market cap stands at £13.01 million. In last one year the stock has given investors’ a return of 90.48 per cent.
Eve Sleep PLC
Eve sleep PLC (LON: EVE) is an e-commerce business that sells beds and mattresses online. They prefer to manufacture their products and sell them directly to the consumer through online and local channels.
The firm’s business model mainly focuses on digital sales, social media marketing, and vital customer service. The firm, as of now, is operating in Austria, Switzerland, Belgium, France, Luxemburg, the US, Germany, France, and the UK. Earnings have grown 9 per cent per year on an average over the past five years.
The current share price of the stock is GBX 4.80 (as of 11:15 AM GMT+1 on 4 May 2021), and it has a market cap of £13.15 million. In last one year the stock has given investors’ a return of 238.13 per cent.
Alien Metals Ltd.
Alien Metals Ltd. (LSE: UFO) is primarily a mining and exploration project development company listed on the AIM (Alternative Investment Market) platform of the London Stock Exchange. The firm's primary focus is on precious base metals and commodities. The company follows a strategy led by acquisition and is managed by a high-quality geological team. Their main aim is to develop a well-built portfolio of diversified assets, which also has two recent acquisitions in western Australia in the previous year.
The company has also targeted 12 main exploration goals on its 12 mining sites in Mexico. The company has an exclusivity arrangement with Wombat Resources to acquire the silver tailings project at Elizabeth Hill in Western Australia in 2021. Alien metals have also raised £2.5 million to fund development and exploration costs across the portfolio. Earnings have grown 29.6% per year on an average over the past five years.
The current share price GBX 1.15 (as of 11:16 AM GMT+1 on 4 May 2021), and it holds a market cap of £41.1 million. In last one year the stock has given investors’ a return of 983.24 per cent.