Saturday, January 4, 2014
Why A Very Low Price To Sales Ratio Could Be The Most Important Factor When Investing In Penny Stocks Or Low Single Digit Stocks'
Once again I will attempt to make this as simple as possible. A low price to sales ratio is a simple way to determine if a company is very undervalued. Theirs a lot of reasons why a stock might trade at a low price say 1 dollar or 4 dollars a share. But how does one really know if the stock is a bargain if it trades below 5 dollars or below 1 dollar their has to be a way to really measure the value of the company. The price to sales ratio is the key because its so simple anyone even those with little financial knowledge can easily determine this valuation. I will give a simple example of a stock with a low price to sales ratio. Suppose theirs a stock that does 200 million dollars in annual sales now the market cap of the company is only 10 million dollars annually. This means that the value of all of the shares trading in the market are worth only 10 million dollars. In other words the value that the market is placing on the company is just 10 million dollars. Get the idea sort of.
Here is a simple breakdown of this measurement
Their are a total of 2 million shares issued and outstanding thats all the shares that are held by shareholders.
The price of the shares trading in the market is 5 dollars
So 2 million shares valued at 5 dollars a piece = 10 million dollars.
The company does 200 million dollars in annual sales but the value of the business is just 10 million dollars. Thats what I mean when I say a stock with a very low price to sales ratio could be a great bargain because the value that the market is placing on the business is so much less than the annual sales of the company.
Find a low single digit stock or a penny stock in a halfway decent company with a very low price to sales ratio and you will have the odds heavily in your favor compared to low single digit stocks and penny stocks that lack this so very important valuation factor.
In order to have a high likelihood of making enormous profits in a low single digit stock or penny stock a low price to sales ratio is a essential element.
Some Excellent Penny Stock Investing Resources
Penny Stock Investing Newsletter
Manhattan Calumet Value Stock Hotline
Red Chip Companies