Penny Stock Due Diligence

The cover story in a recent issue gave me good insights into Penny Stocks. I wanted to understand how an investor can differentiate between a genuinely promising penny stock and a potential pump-and-dump scheme? - Priyesh T

Editor Responds: We appreciate your kind words of encouragement. Differentiating between a genuinely promising penny stock and a potential pump-and-dump scheme requires vigilant assessment. First and foremost, scrutinise the company’s financial health. A promising penny stock should display consistent revenue growth and profitability. Beware of irregular or suspicious financial data. Additionally, delve into the management team’s credentials and past performance. Check for adherence to Indian regulatory standards, such as SEBI compliance, and investigate any history of legal or regulatory troubles. Stocks heavily promoted through unsolicited emails, social media or aggressive marketing may be suspect. Genuinely promising stocks gain recognition based on solid fundamentals, not marketing gimmicks. Evaluate trading volumes since abnormal spikes or irregularities could indicate manipulation. Keep writing to us.