Wednesday, September 28, 2016

What is a Penny Stock?

A penny stock is a share in a company which sells at less than a dollar (in pennies or pence). The term is generally used in the sense of low priced stocks.
Penny Stocks on American Exchanges

Many people believe, perhaps by the face value of the term, that penny stocks are lowly. In most cases they are right.

In the context of India, if we have to translate the meaning, a stock should be selling at below one rupee to be called a penny stock. I was highly skeptical whether a share could be sold in paise. However after applying a filter I was shocked to find  quite large number of stocks indeed selling below a rupee! Here is a snapshot.


Indian Penny or Paisa Stocks
Leaving penny stocks aside, I would like to caution the audience that it is not right to judge the quality of stock just based on the price. There may be many factors behind a small price, like its face value ( a Rs.10 face value share may be trading at 200 and a Rs.1 face value share may be trading at Rs.20), listing at early stages of a company, etcetera.

In our Portfolio 2K15 there are a couple of small priced yet excellent stocks, though not penny stocks literally, as follows:

  • NHPC Ltd.: Rs.18.85
  • SJVN Ltd.: Rs.27.07

Conclusion:

Penny stocks are stocks that sell below one dollar in the US and one rupee in India. By and large they are worthless. However it is not advisable to judge the stock on its face-value looking at the price. There may be a few excellent stocks that may be low priced, though not in pennies. 




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