| When trying to assign a value to a penny stock, one | | | | situation are trading for under their cash value since |
| of the factors to look at is the cash per share that | | | | investors ignore the cash at hand and just focus on |
| the company has. The cash per share is a public | | | | the short-term situation of the company. The |
| number you can find by going to an online finance | | | | experienced investor knows that company is an |
| site or within a brokerage account you may maintain. | | | | attractive acquisition candidate. Any acquirer can buy |
| By looking at the profile of a reporting company, you | | | | the company for $1 and use the cash per share for |
| should be able to see how much cash per share the | | | | further business ventures. It would be like going to |
| company has. Many companies that are struggling still | | | | the bank and withdrawing $10,000 for only $5,000. |
| have large cash reserves from previous operations. | | | | Another valuation method is to value a company by |
| Let's use the example of ABC Corporation, a small | | | | the multiples of sales it sells for. This is called sales |
| electronics manufacturer. ABC's current strategy may | | | | per share, which is simply the sales of a company |
| be faltering because of a recent loss of a big | | | | divided by the number of shares. At $1 sales per |
| contract. Although ABC no longer has that particular | | | | share a $2 stock is selling for twice its sales. |
| contract, it maintains a $2,000,000 cash reserve from | | | | Compare that number to other stocks in the same |
| earnings derived while servicing that contract. The | | | | industry and see which stock sells for a lower sales |
| $2,000,000 could be used to secure additional | | | | multiple. The stocks with the lower sales multiple |
| contracts to increase its earnings. The cash reserves | | | | would be considered a better value according to this |
| could be used to start another business or to acquire | | | | method. Now, many of the best penny stocks do |
| an existing business. Cash is the most valuable asset | | | | not have sales so you may have to use alternative |
| a company can have due to its liquidity. If ABC | | | | methods such as book value, PE ratios, market cap |
| Company has 1,000,000 shares outstanding, it would | | | | and the size of the float to help determine a |
| have cash per share of $2. Many companies in this | | | | company's stock value. |