I know when I started investing in stocks I though Penny Stocks were a great way to buy companies cheap but now I realize I was wrong. Many lower quality companies intentionally divide their company into shares with a low price to attract young investors that don’t do good due diligence. Also, many of these companies don’t trade on popular exchanges that subject them to harsher terms. To further prove this point let’s looks at Captain’s Pizzeria.
Captain’s Pizzeria is worth $1,000
If I divide Captain’s Pizzeria into 1000 shares each share is worth $1.
$1000 valuation / 1000 shares = $1 a share
If I divide Captain’s Pizzeria into 100 shares each share is worth $10
$1000 valuation / 100 shares = $10 a share
In both these instances the company is worth the same but the share price it different.
In conclusion, I would recommend you to stay away from Penny Stocks as they Prey on younger investors with little experience.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.