How Do You Evaluate A Micro-Cap Company

If you’ve ever considered adding micro-cap stocks to your share portfolio, but aren’t sure where to start,  you’re not alone. Micro-cap stocks are generally traded by companies generally with market caps under $250 million. The stocks are considered high risk,  but if they’re approached in a different manner than regular shares, they can yield excellent returns. Understanding the difference between “good” and “bad” micro-cap stocks is the key to minimizing risk, but for the individual investor, it means doing a lot more research using micro-cap stock alerts. Micro-cap stocks can seem very high risk on the surface, but the reasons for this may be less to worry about than you think. Many successful companies today made their start trading in micro-cap or penny stocks over the OTCBB or Pink Sheets exchanges and went on to become solid investments, and so it follows that amongst the chaff, there must be a current crop of wheat.

Current financial figures don’t always indicate a company’s true position in the market. New companies often have negative amounts of capital, but this is to be expected. What really matters are these key points:

 * Does the company have a unique or valuable product or service that it supplies, and is the management team the correct one to oversee and grow the company? Researching new companies on the micro-cap stock alerts should take up around 80 percent of your efforts, as opposed to studying current financial records. A company’s potential growth in any possible future market climate is a better indication as to the current risk level of its stock.

 * Travel with care when taking any stock tips, particularly unsolicited emails or calls from “brokers.” Micro-cap stocks, because of the uncertainty of potential value, and scarcity of information, are sometimes subject to “pump and dump” scams. Famous historical examples include Enron’s shameful performance in the opening years of the century, and the case of 15-year-old Jonathon Lebed who single-handedly manipulated penny stock shares by talking them up over internet forums, resulting in losses to many unwise investors who chose to rush buy.

Do your research and find as much information as you can on the company you’re looking to invest in, even if it means paying a little for something verified. Be wary of alerts, and take any hype with a grain of salt, and you might be able to enhance your portfolio. Companies can burn bright and fizzle out overnight, so there’s no substitute for market experience. Watch the markets closely, keep track of micro-cap stock alerts, and the winners will start to stand out.