When you invest your money you want the best profit potential with the least risk. There are stocks in large cap companies where your money is pretty safe but where growth is minimal. And there are penny stock start-ups that offer the prospect in hundred fold growth and better but also very likely to fold, taking your money with them. A sweet spot in investing where risk and growth potential are nicely balanced is when you invest in micro stocks. Micro cap stocks have market capitalizations between fifty and three hundred million dollars. These are not penny stocks in that the stock prices when you invest in micro stocks are similar to those of larger companies. There are simply fewer shares of the stock in question and a lower market capitalization of the company than with large, middle or small cap stocks.
Why Invest in Micro Stocks
Companies that invent a market niche tend to do well. Those who dominate that niche become the next Apple, Microsoft or Cisco. Did these folks just invent a cure for Alzheimer’s disease? If so it is time to jump on board. And, can the management continue to innovate as the company grows? A smart and resourceful management team can make all the difference in the world. And, be careful when the inventor of the process that makes the company unique is eased out by business types. Then the reason to invest in micro stocks may have just gone away.
How to Invest in Micro Stocks
You are looking for growth in a micro stock. When you invest in micro stocks you want strong intrinsic value, the expected earnings of the company discounted to current value. And you want a fairly priced stock. A low P/E ratio is a good idea but remember that many new companies see lots of sales before they see profits. A price to earnings ratio of forty to sixty is common for a thriving micro stock. Thus look for cash flow and then profits. And, because a company needs to survive in order for you to profit look for a reasonable cash reserve so that when you invest in micro stocks you do not see them disappear with the first downturn. And you will want to see growth. They may have a great new product but are they selling it and are they expanding their market? Read the financials when you invest in micro stocks and buy into companies that show evidence of expansion. And look at stock trading volume. If the stock has caught the interest of the market it will be trading in decent volume.
How Does the Stock Fit into the Bigger Picture?
Some time back we wrote about how to invest in middle class growth in Latin America. Latin America is gradually developing a strong middle class and the middle class is buying lots of stuff. When you invest in micro stocks that cater to the needs and desires of a growing demographic you are probably going to make money. Find practical investments when you invest in micro stocks. Remember the old saying from the California gold field days, when everyone is digging for gold your best bet is to sell picks and shovels.