INSUBCONTINENT EXCLUSIVE:
Like every other asset class, investing in penny stocks brings with it risks.Are penny stocks really worth the risk? This is a question a
lot of people ask and it seems there are many answers to this. As you know, like every other asset class, investing in penny stocks brings
A lot of them.Mind you, this space has often seen stocks come down as much as 80-90% in a short span of time. Take the example of Ozone
World, PALM Jewels, and Evexia Lifecare
Look at the price charts of all these companies and you'll see they are down over 80% from the levels they were trading a year ago.And there
are more on this list…While penny stocks are notorious and known for their illiquid status, a select few have the ability to deliver
massive gains in a short span. It's not unusual for a penny stock to climb as much as 5x, 10x or a whopping 100x in a short span.We ran a
query for stocks trading between Rs 100 between 23 March 2021 and 23 March 2022 to see what kind of gains have penny stocks offered to
investors.Out of the total 1,734 stocks, 275 delivered negative returns while 14 remain unchanged and trade at the exact same level they
were trading a year back.Surprisingly, 1,445 of them are trading in the positive territory with many sitting on huge gains.How huge? How
about a whopping 10,150%?That's right
The stock of Kaiser Corporation has gained 100x in the past year, rallying from a mere Rs 0.38 to Rs 38.95.The party does not seem to end
anytime soon as the stock continues to hit upper circuits.Data from BSE shows there are only buyers waiting on the sidelines to buy the
script, with no sellers willing to sell their shares (at least for now).Kaiser Corporation is engaged in the printing of labels, articles of
stationery, magazines, and cartons.So what justifies a 10,000% rally in the stock? Is it because of its financials? Or low liquidity?On the
financials front, the company does not have enough to support this rally
Net sales for financial year 2021 were in line with sales reported for previous years
Although the company did turn profitable in 2021, the profit figures were not extraordinary.Could it be rallying as the company's quarterly
performance is improving? We don't know
Maybe.For the past four quarters, the company has reported improving sales and net profits if compared to their previous year figures.Coming
to liquidity, a first glance at the company's shareholding pattern may tell you a different story
The company's promoters hold 59.5% stake which means there's ample liquidity left for retail shareholders.But that's not the case really
The company's retail shareholding pattern shows that just 6.5% of the total equity, or 3.4 m shares are held by individuals
The rest, 33.8%, is held by corporate bodies named Lorance Investments and Xicon Power. Following Kaiser Corporation's footsteps is Polo
Queen Industrial - Fintech, sitting on 6,500% gains.The company has seen its share price skyrocket from Rs 1 to Rs 66 in the past one year
The gains have recently come down due to the broad-based selling otherwise it has a high of Rs 89 touched in January this year.The company
is engaged into trading of fabric, FMCG products and minerals and chemicals
It sells FMCG products under its own brand 'Polo Queen's in personal care, home care, kitchen care, and fabric care segments.Promoters of
Polo Queen own around 75% of the total equity
The company in December last year underwent a stock split from Rs 10 to Rs 2, making more liquidity available in the market.This did not
bode well as it resulted in a steep fall in the stock price as can be seen from the chart below.Coming back to the top gainers…Vegetable
Products and Cressanda Solutions are the next in line with over 2,900% gains.Vegetable Products, which is engaged in the business of
manufacturing of vegetable edible oil products, has rallied despite it being a loss-making company. It sells products under the brand name
- Pratap Vanaspati. What has caused such a sharp rally in this little known edible oil maker? It could be because the government has
reduced import duty following a surge in global commodity prices.Apart from these, here are the top performing penny stocks of the past one
year.As they are priced low, retail investors have a liking for them as they can buy large chunks of these stocks at low prices. Retail
individuals also like the prospect of earning high returns in short term. But one should note that most of these stocks can have no track
record of sound fundamentals, they will be saddled with debt, and have low promoter holding. Basically, not a good track record.Experts
have often warned investors that expecting high returns from all penny stocks would be a mistake.On the bright side, penny stocks can be
great investments too as they diversify your portfolio
But it's important that you separate the wheat from the chaff.In a volatile market (like the present), be very selective and look out for
penny stocks that regularly pay out dividends
This way, your downside will be capped.Always look out for the company's debt level
A debt to equity of lower than 1 should be preferred.To conclude, check out the balance sheet, look at the debt to equity ratio and see if
the company has a track record of consistent dividend payouts for the last 5 years. With a clear strategy by your side, your journey can
turn out to be relatively more comfortable.Since you're interested in penny stocks, check out Co-head of Research at Equitymaster, Rahul
Shah's video where he zeroes in on the right penny stocks to watch out for in 2022.Knowing which penny stocks to watch out will give you the
upper hand.Video link - Penny Stocks to Add to Your Watchlist in 2022.Happy Investing!Disclaimer: This article is for information purposes
It is not a stock recommendation and should not be treated as such.Note: Equitymaster.com is currently not accessible due to technical
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You can also track us on YouTube and Telegram. (This article is syndicated from Equitymaster.com)(This story has not been edited by
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