Due Diligence:

Before investing in a company you should always do your own due diligence to ensure the investment fits your criteria. This can be done in a short period of time with access to the web.

We first suggest you look into the fundamentals of the company. Fundamentals can include a company’s financial reports, along with non-financial information such as growth estimates of the demand for sold products and competing products. Investors should also look into new regulations, demographic changes and economy-wide changes.

When examining financial reports you will want to look for improvements in earnings per share, top line revenue, reduction of expenses, cash on hand and several other variables. The disadvantage with many penny stocks, pink sheets being the worst, is that their financial reports may not even be published by their company, and, if they are, unless they are audited by a legitimate third party, you are taking they company’s word as to their accuracy.

Keep in mind that many Penny Stock companies don’t need, nor are expected to have, positive earnings. Instead, they generally accumulate debt as they focus on research and development of new technologies, aggressively moving into new markets, fighting for market share with competitors, etc.. Other companies with minimal growth prospects, on the other hand, have more importance placed on actual earnings, lowering operational costs, etc..

Be sure to understand what numbers are important and unimportant to a specific company based on their situation and the position they are in. This can be done easily by going to wsrn.com and doing an industry comparison on the prospect company. When comparing, look to see if other companies in the same industry seem to have positive earnings, or is their focus on growth and research, etc. Also, determine if they are a larger or smaller company than the industry average, and if they are growing faster than the others.

A company’s website is another good source for information on their company and their industry. Keep in mind that management usually plays a big role in what goes on their website and how it looks. If the site looks unprofessional or confusing, it might suggest they didn’t do enough research to produce a polished and informative site, which could translate into how they run their company.