| When making investment decisions there is a lot of | | | | for a company. If the target price is much higher |
| material available at your disposal. From press | | | | than the current price, there`s a good chance that |
| releases, charts, financial statements, to economic | | | | the stock will rise to the target price and you can |
| indicators, it all starts to get overwhelming and can | | | | profit from this. |
| cloud your decision making process. By understanding | | | | Because penny stocks are usually young companies |
| the different approaches to analyzing a company, | | | | there is not a lot of statistical information about |
| you will be able to make a wise decision based on | | | | these companies available for these computational |
| the information you need to know, and cut out the | | | | models. In these situations, it would be best to |
| noise. | | | | evaluate data from more mature companies that |
| Fundamental Analysis | | | | were once in a similar position to the penny stock |
| The fundamental analysis approach involves | | | | under analysis and see if the trend is similar. |
| researching the prospects of a company, its industry | | | | Technical Analysis |
| and the overall economy. There are a lot of factors | | | | Taking the technical analysis approach to investing |
| that determine whether a company's stock may be | | | | does not involve any information about the company |
| going up or down and not all are related directly to | | | | or industry whatsoever. Technical analysis is the |
| the company. These can be economic data, specific | | | | study of historical stock prices and market behaviour |
| company financial position, or even the quality of | | | | resulting in repeated patterns in data. Because a lot |
| management. Let's take for example Gold Company | | | | of moves in the stock market are sentiment driven, |
| XYZ Ltd: | | | | they often will repeat cycles which can be identified |
| - The investment climate in Canada is hot and gold is | | | | and traded to a profitable end. |
| breaking to new highs. People will pay more to own | | | | Not all penny stocks can use technical analysis as a |
| any gold company. This will drive the price of Gold | | | | method of investing. Stocks trading in low volumes |
| Company XYZ higher. | | | | can react wildly in the markets even without any |
| - The entire board of directors leaves the company | | | | specific catalyst because the spread between the bid |
| and all cite "personal reasons." This change in | | | | and ask prices might be quite high. Meanwhile small |
| management generally signals problems and Gold | | | | companies with news releases may cause prices to |
| Company XYZ shares fall in price. | | | | surge or drop based on the news which can |
| - Drilling results find even higher levels of gold than | | | | sometimes be a surprise and can`t be priced in to the |
| previously thought. This type of news will positively | | | | stock. That being said, high volume penny stocks can |
| affect the financial position of the company and | | | | behave better in technical pattern analysis and will |
| share prices of Gold Company XYZ rise. | | | | have much larger percentage swings than large cap |
| Penny stocks can be a bit different from large cap | | | | stocks. |
| stocks because they are less concerned about | | | | The three ways of evaluating a penny stock |
| profitability. This is mostly because penny stock | | | | company are quite different. They all involve specific |
| companies are in their infancy and not yet at the | | | | pieces of information. By focusing on one you |
| stage of profitability, so it's more important to be | | | | willcut-down on the overwhelming amount of |
| looking at management experience, underlying sector | | | | information for your decision. With fundamental |
| trends, and results of operations towards profitability. | | | | analysis you will learn about the inner workings of the |
| If all the checks are positive then you're ready to | | | | company and the economy it operates in. |
| buy based on fundamental analysis. | | | | Quantitative analysis will give you a specific price |
| Quantitative Analysis | | | | target based on a long history of numbers from the |
| The quantitative approach to investing is typically | | | | company and industry. Finally, with technical analysis |
| used by sophisticated investors with a lot of | | | | you will be able to identify patterns and profit from |
| computing power. Quantitative analysis gathers | | | | history repeating itself. In general it is best to select a |
| numerical information on interest rates, industry | | | | strategy based on your investment horizons and risk |
| valuations, and other economic indicators together | | | | profiles. |
| into a mathematical model resulting in a target price | | | | |