Top Penny Stocks - The Beginner's Guide To Finding Them

Top Penny Stocks are the ones considered the "surest bets", when it comes to investing a smaller amount that pays off big. Finding the top Penny Stocks may not be an exact science, but there are some time-proven characteristics you can look for. If you make the wrong choices, your investment can quickly disappear, but you can become rich, if your timing is right and your choices are correct. In a beginner's guide to picking the top penny stocks, these are the first things to consider:

• High Price-To-Earnings or PE Ratios:

You have probably heard this term before, but may not know how it applies to selecting proven winners, in the investment game. The PE or price-to-earnings ratio is a number that is arrived at by dividing the price of each share by the earnings each share generates. The better the PE- the stronger the stock's performance is. If you find choices that have an obviously higher PE than others, it might be a prime candidate for a price increase of the shares. This means you can make more money by purchasing this particular stock, instead of the others, given that everything else is equal.

• A Low PEG or Price-Earnings-Growth Ratio:

While a high PE is important, so is a low PEG or "price-earnings-growth" ratio. Once you have found the price-to-earnings ratio, you divide it by the projected 3-5 year earnings per share, as predicted by the analysts. The lower the PEG- the better and most professional traders will look for the top penny stocks by considering those that only have a PEG under 1.0. The combination of the PE and the PEG should be considered, when selecting the potential investments that will become the best performers.

• Cash Flow Trends:

When searching for top penny stocks, cash flow trends are a consideration. All businesses need cash to operate or they face bankruptcy, in a short amount of time. Growing companies have money tied up in equipment, building or inventory and generating a profit is a fundamental fact that contributes to businesses that survive and thrive. You can make money on shares in a business that has the capacity to generate a profit. On the same token, you can see a dip in share prices of companies ill-prepared for growth, due to cash flow problems or the lack of profit and stymied ability to produce.

• Profit Margins:

That brings us to the next characteristic of the best penny stocks - profit margins. If it takes a lot of cash to generate a profit, the chances are less it might happen before they run out of capital. If a business can generate a nice profit on a lower amount of sales, it may be more desirable. Profit margins are determined by dividing the annual profit by the annual sales. The higher the profit margin- the better, so you shouldn't only look at the companies that have the highest dollar amounts in the sales categories. While it indicates the ability to sell product, it's the amount of profit made that makes the difference in top penny stocks.

Using these criteria as your beginner's guide to selecting the top penny stocks will give you the basics on investing. To learn more, you may want to consider tutorials that are more complete.