The different between cheap stocks and penny stocks

[bjpoly]

Please expert in the house put me through on this topic.

[hispy99]

Originally Posted by bjpoly

Please expert in the house put me through on this topic.

Penny stocks are stocks with low nominal values; in the U.S these are usually stocks with nominal price lower than $5. I don't know what the cut-off of is in Nigeria, but a stock like IAA trading at N1.09 is considered a penny stock.

Cheap stocks are stocks that are attractive based on valuation. Different valuation metrics can be used to determine if a stock is cheap, such as price-to-earnings, price-to-book, price-to-sales and price-to-cash flow. For instance, GTB trading at a PE multiple of 11 may be considered cheap compared to Unity Bank trading at a multiple of 59. However, Unity Bank may be considered a penny stock because its last closing price was N5.06 while GTB cannot be considered a penny stock because of its price (currrently N26.76)

Hope this helps.

[knightofdelta]

Hi Bjpoly,

Just in case you did not understand Oga Hispy's post. He speaks a lot of English at times.

Penny stocks are stocks that are selling below N10 in Nigeria. Just because a stock is penny does not mean that it is cheap. A stock is said to be cheap based on some valuations which are used to reach the fair value. A cheap stock sells below its fair value. An example of penny stock is Unity bank that is around N6 and a cheap stock is GTB that is around N25 with its fair value at around N48.

It is possible for a stock to be both a penny stock and at the same time cheap eg Red Star express, because it is selling below its fair value and at the same time it is less than N10. You should note that not all penny stocks are cheap. Unity bank is a penny stock with a market price around N5.06 but is worth around N2.30. Although it is a penny stock, it is still expensive.

I hope I made it simpler.

[hispy99]

Originally Posted by knightofdelta

Hi Bjpoly,

Just in case you did not understand Oga Hispy's post. He speaks a lot of English at times.
Penny stocks are stocks that are selling below N10 in Nigeria. Just because a stock is penny does not mean that it is cheap. A stock is said to be cheap based on some valuations which are used to reach the fair value. A cheap stock sells below its fair value. An example of penny stock is Unity bank that is around N6 and a cheap stock is GTB that is around N25 with its fair value at around N48.

It is possible for a stock to be both a penny stock and at the same time cheap eg Red Star express, because it is selling below its fair value and at the same time it is less than N10. You should note that not all penny stocks are cheap. Unity bank is a penny stock with a market price around N5.06 but is worth around N2.30. Although it is a penny stock, it is still expensive.

I hope I made it simpler.

See as you just take style yab me..if not that you be KoD, I would have sent my "egbesu" boys to deal with you

[emmanuel ewumi]

The so called penny stock can be expensive when you consider earning and growth prospect for the company.
And a cheap stock can actually sell at a higher price than a penny stock. And yet the stock with the higher price can give a better return than the penny stock,provided the market is rational at that point in time.