One of the biggest mistakes penny stock investors make is judging only the company and not analyzing the fundamentals of the stock. Today we are going to go into some penny stock fundamentals that you should understand and utilize to maximize your earnings. After you have learned the fundamentals we have listed below, check out Warrior Trading on Facebook. On their Facebook page they share great information on penny stock fundamentals that will help increase your penny stock vocabulary and breadth of knowledge.
With we analyze a company’s stock price we are looking at a company’s revenues, profits, losses, and projections for future performance and expectations.
Revenue is the money a company earns for its goods and services. It does not take into account the cost to produce the good or run the company, it is simply a measure of the money coming in the door from selling the goods or services offered by the company.
Unlike revenue, profit takes into account the cost to produce the good or service. Profit is the amount of revenue that exceeds the expenses, costs, and taxes to sustain the business activity. There are three types of profits that you should familiarize yourself with: gross profit, operating profit, and net profit.
Earnings Per Share
You calculate earnings per share by taking a company’s profits and dividing it by the total number of outstanding shares. Earnings per share is an indicator of a company’s profitability and can be an important indicator when trading penny stocks.
You’ll notice in the chat rooms that everyone loves spouting off P/E ratios and what they think they mean. The P/E ratio is a stock’s price divided by its earnings. It is a measure of the stock’s current share price relative to its per-share earnings. The ratio is often used to analyze how expensive a stock is.
Technical analysis of a penny stock is more accurately judging the stock based on its price as opposed to judging the company. Since you are actually buying the stock, and not the company, it makes more sense to concentrate of the technical analysis of the stock price then the company. The main tool used by technical traders is the price charts analysis, so I suggest you first read some guides on how to read trading charts. Once you can identify and analyze this technical data quickly and efficiently you will be in a much better position to trade penny stocks successfully and take your penny stock trading to the next level. When you are ready to take that next step go to Warrior Trading and check out their Step by Step Guide to trading penny stocks. They will show you everything you need to know about how to trade penny stocks. Good luck!