Penny stocks trade for under $1 per share on the ASX.
They can provide an affordable investment but their performance is volatile.
We highlight the 10 fastest-growing penny stocks from the ASX over the past week.
What are penny stocks?
Penny stocks are shares in small companies that trade for less than $1. These stocks can offer high growth potential but come with considerable risk, as they often lack the financial stability and predictability of larger established companies. They're sometimes referred to as micro-cap stocks.
Which penny stocks have performed well in Australia this week?
To help you identify potentially interesting penny stocks, each week we look at the performance of penny stocks and identify the 10 which had the largest growth. We exclude any stocks priced at under $0.10, as even small price movements can look like large percentage gains.
Our list of highlighted stocks aren't necessarily the best penny stocks for you or your personal situation. Investing in penny stocks is typically highly speculative and can be very risky. We do not guarantee the performance or returns of any investment. You should do your own research and consult an industry professional when in doubt.
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What are investment strategies for penny stocks in 2024?
Penny stocks are smaller, less established businesses which are often impacted by volatility. However, even when the overall market is volatile, it doesn't necessarily make it a bad time to invest, especially for those who are buying for the long term. After all, the share price and business performance don't always align over the short term.
So over the long term owning shares that are cheaper, in businesses that are growing can be beneficial to your long-term wealth.
In Australia, the commodity boom off the back of the GFC helped power many of our penny stocks, especially in the mining and resources sector.
Also it's worth pointing out that not all shares follow the market. In fact many businesses can have differing performance to how the market is going. Again though, this will rely on buying the right business.
Finally some businesses perform stronger in a recessionary period. Service providers, repair services, small luxury items, consumer staples and commodities can be recession resistant.
Our expert says
"I'll trade in things I believe have a lot of hype… I'll have a very firm stop loss and a price I take a profit at. And once I take the profit, I take it and move on. I'm done. I'm not re-entering… Or if it hits my stop loss, I sell and take the loss. I've taken lots of losses and I've taken lots of profits."
On the opposite side of the scale to penny stocks are blue chip stocks. In comparison to penny stocks, blue chip stocks are large listed companies that have been around for a long time and have an extensive, stable financial track record.
Some of Australia's biggest and most well-known companies are considered blue chip stocks, such as the Big Four banks, Telstra, BHP.
While penny stocks in most cases pay no dividends, blue chips stocks almost always do.
The downside of buying blue chip stocks is they traditionally have a slower growth rate compared to smaller stocks.
If investors are chasing larger capital growth, they traditionally do not look at blue chip stocks.
Type of investor suited to penny stocks
Penny stocks are highly speculative investments. The odds of you losing all your money are greater than gaining multi-bagger returns.
As such, these investments usually are tailored towards the following:
Experienced investors
Investors with high risk tolerance
Hedge funds and other professional investors
Those with a long-term horizon who are willing to ride out short-term volatility
Investors who are happy to take a bit of a gamble for potential extra reward
Pros
Lower share price
Today's penny stock could be tomorrow's winner
Potential for multi-year returns as the company grows
Not necessarily riskier businesses, just smaller companies
Cons
Higher risk especially compared to blue chips
Liquidity issues
Increasing volatility
Prone to scams
On average have more losers than winners
The business might have a short history
Are penny stocks good for beginners?
Australian penny stocks can be a good way for investors to ease into the market.
Like with everything else in life, you get what you pay for. So investors who choose to put their money in mature blue chip stocks can do so, but it will cost them more for the privilege.
On the other side is penny stocks, which, as the name suggests are significantly cheaper per share.
However, there is a downside – these companies are far riskier compared to the more established players.
FAQs
One easy way to find and research penny stocks is to use a stock screener, filtering by price or market capitalisation. Some free platforms such as TradingView offer stock filters and several online brokers such as CMC Invest also offer screening tools. Always research these companies thoroughly to understand their business model and potential for growth before investing.
Choosing which penny stocks to buy requires careful research. Focus on businesses with a solid strategy, growing revenues, and robust industry prospects. However, always remember that penny stocks carry significant risk, and it's vital to diversify your portfolio. For ideas, you can check out the list of stocks above.
Traders like penny stocks because they're volatile. Traders can profit from volatility by making many buy and sell trades through the day (known as scalping) to capitalise on price movements. That being said, volatile stocks can also be very risky and there is a higher chance of losing money than gaining profit as a day trader.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.
Cameron Micallef was an investment and utilities writer for Finder. He previously worked on titles including Smart Property Investment, nestegg and Investor Daily, reporting across superannuation, property and investments. Cameron has a Bachelor of Communication and Media Studies/ Commerce from the University of Wollongong. Outside of work Cameron is passionate about all things sports and travel. See full bio
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Angus Kidman is the international editor-at-large at Finder. He's an award-winning journalist who has reported on technology, travel, finance and other topics for over 30 years. Angus appears regularly on Sunrise, Today, The Project, Seven News and other TV and radio shows. See full bio
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