Penny stocks are an exciting way to invest your money. You can take a few hundred dollars and turn it into tens and hundreds of thousands almost overnight. But with all that money, youre going to have a problem just what are you going to spend it on?
Will you buy the new Bass Cat Puma Boat or the CL Class Mercedes why not both!
You can have the good life, all it takes is a bit of luck, some elbow grease, and a bit of research. But in my experience, its the research part tripping up most investors.
What do you focus on?
What do you look for?
Are there any red flags?
Now there are lots of answers to those questions. However, today Im going to focus on one important metric. And its a metric that should look good for every one of your investments, especially penny stocks.
Before you add a single share of any penny stock to your portfolio, you need to focus on one important metric.
Specifically, revenue growth.
Now, just so were all on the same page, revenue growth goes by a couple of different names. Sometimes its called sales growth or net sales growth. Others call it earnings growth (which is just plain wrong).
And yet others call it top-line growth. Probably because the revenue line item is at the top of the income statement.
Look, whatever you call it, revenue growth should be one of those important metrics you look for in any penny stock investment you make. And the reasons are simple.
Revenue growth is a quick and easy way to measure the health of a business.
When revenue numbers are growing quarter after quarter, year after year, it means the company is doing something right.
So what creates revenue growth?
Often times the company is simply selling more products. Another reason revenue grows is because the company has been able to increase prices. Yet another major way to increase revenue growth is to introduce new products.
Strong revenue growth is important and usually the bigger the growth the better. However, I always like to understand the fundamental reasons why revenue is growing.
One of the most exciting situations is when you see all three factors pushing the companys growth rate higher.
Its the holy grail of investing, finding a company thats not only growing market share by selling more product, but also by charging higher prices and introducing new products.
Take for example the pharmaceutical industry.
Pharmaceutical companies may have a number of drugs on the market and their sales force is always pushing doctors to prescribe more drugs. Theyre also pushing you and me to ask for more drugs just think of all the drug ads youve seen lately.
Drug companies are also able to charge premium prices for their drugs and theyre not shy about making them more expensive! And lets not forget the product pipelines. Theyre constantly developing new and improved drugs.
So revenue growth is important to look at but whats more important is understanding why revenue is growing.
Now one other comment
Quarter over quarter revenue growth is nice but for really big winners, you need to identify companies who can grow revenue for years, if not decades. Thats how the big returns are made this tip alone might turn you into a millionaire!
Remember, if youre looking to invest in penny stocks, one of the key ingredients any company must have is solid revenue growth. Dont invest without it!
Until next time,