| Penny stocks that trade on the pink sheets often | | | | were to move forward and become a reporting |
| have hidden value, so it's important to understand | | | | company... meaning they began to file financial |
| the process and take the pink sheets seriously. If | | | | statements and an annual report? This certainly |
| you're a first time investor, a couple of quick | | | | would bring more attention to the company and |
| definitions: First, a spread is the difference between | | | | interest in the stock. Other investors would begin to |
| the bid and ask price... or the buy or sell price for a | | | | realize that ABC might be significantly undervalued. |
| penny stock. Secondly, a Market Maker is a dealer | | | | And then if the company followed through with its |
| that sets the price of a stock. | | | | current business model and even expanded to |
| Many pink sheet stocks have been beaten down in | | | | increase revenues and profits, you could be sure that |
| price and often trade below their true book value. As | | | | other investors searching for the best penny stocks |
| an example, ABC Company has a book value of | | | | would find and start buying this stock. |
| $2,000,000, but may only have a market cap of | | | | But wait a minute. You could own all the shares of |
| $100,000. The number of authorized shares could be | | | | the company if you bought up the float. Or most |
| 25,000,000 and the stock trades at.02 a share. Now, | | | | likely the shares are in just a few hands. So, based |
| what can make this ABC stock even more potentially | | | | on supply and demand, the Market Makers would |
| valuable is the number of available shares in the | | | | raise their bids hoping to get you to sell your shares |
| market. This is called the float. The float for this | | | | so then they can turn around and sell them to new |
| example company might only be 5,000,000. That | | | | buyers. It's then your choice to sell or not! |
| would mean the total price for all of ABC's shares in | | | | The above example may not be realistic in that not |
| the market is only worth $100,000. That means you | | | | everyone has $10,000 or even $100,000 to buy up all |
| could buy all the shares of this public company with a | | | | of ABC Company's shares. But you can understand |
| book value of $2,000,000 for only $100,000. | | | | the significant upside available if you find a hot penny |
| Let's take it a step further. So what if ABC Company | | | | stock that's undervalued. |