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Canadian Small Cap Penny Stock ResearchPenny stocks generally have more margin for growth than other stocks. For instance, you could buy a penny stock for .10 and if it goes to .20 you just doubled your investment. This is far from likely with any other stock, even strong ones such as Apple or Intel. Investors going after big names often want the security of past performance more than they want growth. Penny stock investors are drawn to the opportunity for tremendous growth.Of course with small cap stocks you could buy shares at .10 and have the company go out of business a year later, which isn't likely to happen with decades-old companies. But with any stock at any price, you can either make money or lose money. This is where research comes in, and investigating small cap companies is very different than making decisions about other stocks that have some sort of history or already command a large market share. We've recently been looking into penny stocks of companies in the western parts of Canada, namely British Columbia (BC), and Alberta (AB). These provinces host many creative and energetic companies conducting business in many sectors. From high-tech, to medical, to oil and diamond exploration, to military and education, the industries represented by young businesses in the western end of Canada provide an excellent range of investment options for any penny stock investor. Analysis and Research of Penny StocksAs with all types of investments, there are many things that need to be looked at before investing in small cap and penny stocks. This is the difference between investing and gambling - research. Many people hear news of a company developing a new product or something and immediately buy shares or stock. This isn't investing, it's gambling - crossing your fingers hoping the development turns into something, which will result in the stock value going up. Serious, or sophisticated, investors consider far more important things than this type of trivia about a company. Let's consider some things to look at when evaluating a small cap company and the potential for penny stock growth: 1) Age of the business - how long have they already been in business before deciding to sell stock? Some companies have been steadily refining their skills and increasing market share for many years before going public. Others are brand new and go public as soon as possible to raise operating capital. This is an important question, and if it is an extremely young company, you may need to look at other factors such as their board of directors and other key management for signs of what to expect as the business begins to grow. Without past performance or hard facts to evaluate, you'll need to consider the potential of the key players and other criteria much more closely. 2) Who are the key management and employees of the company? Is the founder(s) of the company still running the operation, or have they hired an experienced CEO to lead the way into the future? Is the founder(s) even still with the company? Are crucial positions in management and marketing filled by seasoned veterans with known and publicly available track records? More importantly, are members of the key management team known for growing new businesses, or just managing older ones? Young companies must grow, expand, and secure market share, which is a whole different situation than older companies past the initial growth phase. This is the crucial mindset and flexibility that allows penny stocks to skyrocket in value during this period. The management team must have very specific skills to nurture a young company to success. Also, are important employees "in the field" or in technology, infrastructure, or research roles also experienced? 3) What made them decide to "go public" and offer penny stock? Why the desire to raise money? As mentioned above, is it just to get off the ground? Or to increase their advertising and attract new clients? To expand currently working sales methods across different markets? To expand production capacity? To develop or implement a new product or service? To bring on more or higher-skilled employees? To open or acquire another location? Is the intention to broaden their customer base, or get more business from their existing customers? Is it a combination of several things? 4) Have they recently been granted any kind of patent or license? This might indicate not only a good marketing or technological advantage, it could also indicate an atmosphere of productivity, creativity, potential, and knowledge within the company. Some companies go public immediately after this type of development, raising money to act on a proprietary or advantageous situation. 5) Have they recently acquired any large contracts, jobs, or business with major clients? Have existing clients been increasing their business with this company? Have they been attracting new clients? Have they recently taken any clients from their competitors? 6) Has there recently been any favourable mention of them in the media (trade publications, web sites, TV, etc.)? This would normally indicate other people in their industry recognize them, and if clients are saying good things then keep your eye on the company and the stock. If it's just the media itself profiling or discussing a business, pay attention and see if that translates into increased business or not. If they fail to capitalize on free media exposure, you might question their sales and marketing abilities. If they leverage it into new business then you may have an agile company ready to prosper. 7) Does the company have a clear mission statement/direction/goal(s)? Every company should have an easy to understand direction they are taking their business. Is there a direction, or do objectives seem to change over months or years? Do they allow markets or circumstances to dictate policies and directions, or do they have a clear singular focus on what they do well? Have they developed a mission statement and goals based on solid research, specialized skills, or just wishful thinking? Do their objectives sound exactly like all their competitors, or is there something that distinguishes this company from the rest? A mission statement or direction of a company is often plainly visible on web sites, print material, and other places.
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