Getting inside penny stock companies has got to be one of the best ways to assess their potential.

No, we are not talking about insider trading but actually visiting the company and having a look around.

Sound extreme? Well, not really and why not? There is no such thing as a company not allowing visitors especially potential investors so, if you can, pay them a visit. Talk to people on the ground, look for evidence of growth or decline, etc.

Of course it is not really practicable or even possible to actually visit every penny stock company you are interested in but you could at least ask the question and see what they feel about onsite visits.

If they are really cagey then that tells it’s own story.

Dave J

The best sources of penny stock information is reading and keeping up to date with developments.

Read the magazines and trade journals that cover the industry you are researching and pay particular attention to the advertisments in those magazines and journals.

In this way you can measure the demand for a product or service.

Magazines will also feature companies with innovation and potential and such an article will, in itself, act like an advertisement for the featured company. Indeed, a positive article is likely to be more positive for a company than it’s own placed advertising.

Todd B

Creditors a good source of information when identifying good penny stocks. They, after all, are owed money by the company.

They must therefore, have extended credit to the penny stock company for the sales of products or services.

By contacting creditors you can find out how much money the company owes and time left to pay it back. Have they ever defaulted, etc?

If the debt is defaulted the creditors will not only call in the loan but will be unlikely to extend credit in the future.

If creditors will extend credit to other companies in the market but not the company you are researching then this would be a red flag to investing in that company.

Dave J

You can get some good penny stock advice by looking outside the company.

Trade organisations are a good source of information on penny stock companies.

Companies join trade organisations to get the collective benefits associated with them. Often supply discounts or collective insurance, etc.

Membership to such organisations usually means a company has had to comply with some kind of entry criteria and therefore if the penny stock company you are researching is a member it must have complied and not be in breach of any of the principals.

Contact the trade organisation and find out how long has your target company been a member, have any complaints been received, etc.?

If they have been a member for a number of years and there are no negative reports then you can assume that the company is in good standing.

You can also use the trade organisation to gauge the general state of the market the company is operating in and what kind of business cycle impacts the industry.

Todd B

You need to understand your penny stock companies’ competition when you are considering investing.

Make a list of your penny stock company’s competitors are and get in touch with them. Find out the general state of the market and how they think they are fairing.

Is the market big enough for multiple competitors or is it a winner takes all? Ask them about the company you are considering investing in and whether they are familiar with it.

If the competition is well entrenched and good in the field then your penny stock company may struggle. Conversely if the competition is poor at serving the market your company could do very well indeed.

Todd B

Talking to customers is a sure fire way of understanding individual penny stocks.

Users of a companies products and services is probably the best source of information on a penny stock you can get.

You can pose as a potential customer and ask the company for references. Any company knows that a new customer is likely to want references and it would certainly be a red flag if non were forthcoming.

Naturally, they may only refer you to satisfied customers but dig around, try locally or via internet forums to get a good cross section.

Find out how long they have used the product or service and whether they are satisfied or not. Are they good at communicating, what is their follow up service like, etc.

You need to find out how strong your penny stock company’s relationship is with their customers as those customers are the lifeblood of the business.

Dave J

One of the best ways of understanding penny stocks is by talking to their suppliers.

Whist this information may be difficult to come by, it is possible to find out who a company’s suppliers are and do a little research on them. How long have they been in business, how successful are they, etc.

Any company supplying the penny stock company you are researching will almost certainly have done their own research on the company as to it’s credit worthiness, etc.

You could even contact the supplier and say you are considering doing business with the penny stock company and ask about their relationship.

The aim is to establish if the company you are researching is in good standing and pays it’s bills on time, etc.

In a nutshell if a reputable supplier is happy to supply your penny stock company you will get a good idea of it’s financial situation.

Todd B

One of the ways of researching individual penny stocks is to look at how many employees it has.

It may sound obvious that a company with employees needs to be able to pay them regularly but it’s an important consideration when looking at small companies.

Certain start up companies may initially pay certain employees (usually the founders or other key players) in stock but this rarely applies to staff further down the line which all companies need to grow and prosper.

So a company with more employees indicates a real business and one with a long term commitment to it’s business.

It may be possible to estimate the number of employees from the company accounts or the information may be available from the company website or other sources.

Failing that, contact the company and ask the human resources manager. While you’re on find out if they are currently hiring and if so in what areas. This will provide vital clues as to which direction the company is heading.

Dave J