Name Some Penny Stocks With Solid Growth And Zero Debt

Penny stocks with solid growth and no debt - Thumbnail

If you go by the definition of penny stocks, these are stocks of small companies that trade at a price below Rs.100. In the US, stocks trading below $5 per share are considered penny stocks. Generally, in the search for penny stocks, people often look for companies with solid growth and zero debt. But is this the right way to identify penny stocks? This is what we’ll answer in this article.

First, let’s identify those stocks that will comply with the conditions of our query – penny stocks with solid growth and zero debt. To find such stocks, I will go to the Big Screener of my Stock Engine. In the Big Screener, I’ll apply the following four filters to screen the stock.

Penny stocks with solid growth - Four Filters

Four Filters

  • #1. Price Filter: I want to see a list of only penny stocks. What are penny stocks? Those stocks whose current market price is less than Rs.100 per share.
  • #2. Market Cap Filter: Stocks of small companies trading below the Rs.100 mark are penny stocks. So, one can use the filters to see only those stocks whose market capitalization is less than Rs.500 crores. However, in this case, I have kept the market cap as “All MCap” as I wanted to see a bigger list of stocks.
  • #3. Debt Equity Ratio Filter: Our query is asking us to show only those penny stocks whose debt is zero. Hence, one can use the filter to see only those stocks whose D/E is equal to zero.
  • #4. Income Growth Filter: Our query has also asked us to show only those companies reporting solid growth. Hence, one can apply the income growth filter of more than 15% per annum.

My Stock Engine has a list of about 1300 number hand-picked stocks included in its database. Only eight stocks passed the above four filters.

Penny stocks with solid growth - Eight Stocks3.111

Now the question remains, are these stocks good for investing? Most of these stocks got an Overall Score in Stock Engine of below 40 (out of 100). Ideally, stocks that can yield a score of 75 are considered good. So, we can say that none of these filtered stocks (except for BCG:532368) are worth considering.

But there is a problem with BCG as well. The estimated intrinsic value of BCG is zero. It means that the company has issues with its free cash flows. Hence, the reliability of these stocks is also questionable.

How To Find Quality Penny Stocks?

If the idea is to find quality penny stocks, depending only on growth and debt, is not enough. What is more important is the Overall Score. Why the Overall Score is important? Because it evaluates a company based on six parameters. All these six parameters can perform a 360-degree check of the business fundamentals of the company.

Overall Score of BCG - Six Parameters

Out of these six parameters, three are the most basic elements of any business: Financial health, the profitability of business, and sustainable growth. The next two are those features that make a business special: quality of management, and economic moat. Finally, what matters most for all stock investors is the price valuation.

The algorithm of the Overall Score is so designed that it inherently gives high scores to big companies that are financially healthy and are growing fast. The main reason for the low scores of very small companies is the volatility of their income and profit numbers.

But volatility is a part and parcel of penny stocks. So, if we need to identify quality penny stocks, we must ignore the volatility factor. How to do it? To identify potential penny stocks using the Stock Engine, I use my pre-built screener theme specially designed for the penny stocks.

Pre-Built Penny Stock Screener Theme

Pre-Built Theme - Penny Stocks

In this screener theme, there is an added scoring algorithm called GMR Score. For this theme, the GMR score scores all stocks considering a few specific parameters that make them a good penny stock.

[Just for clarification, the GMR Score in a Blue Chip Stocks pre-built screener theme, scores all stocks considering a few specific parameters that make them a good blue chip stock. So, the GMR score for a particular stock will change from theme to theme but their Overall Score will remain the same.]

Pre-Built Theme - Penny Stocks

A combination of a high GMR Score, a high Overall Score, and a small difference between the current price and the intrinsic value gives me my reliable penny stocks.

If I find some penny stock that has a high GMR and Overall Score but is currently looking very expensive (the current price is high compared to its intrinsic value), I wait for correction. Generally, for high-market penny stocks, a 10% correction can give a fair entry point. But I generally wait for a price correction of about 20% for low-market cap penny stocks.

Have a happy investing.

Suggested Reading:

Disclaimer: The information provided in my articles and products are for informational purposes only and should not be considered as financial or investment advice. Read more.

Stock analysis is complicated, use our Stock Engine to analyze selected 1,300+ number stocks.

The Stock Engine will give its first impression about its stocks. Then it goes deeper and calculate its intrinsic value and the overall score. The Stock Engine makes it easier to interpret the fundamentals of stocks even for untrained investors.

Join Our Readers

Get the notification of my new blog posts/updates right in your INBOX. I'll not spam it.

Join 1,397 other subscribers
About Small-cap stocks - image

About Small-Cap Stocks: An Investment Guide

Not everybody likes investing in small-cap stocks. Why? A general feeling about small-cap stocks is that they tend to default on their creditors and investors. But it is an excessive generalization of the fact. However, it is also true that it is more likely to find badly managed companies among

Read More »
Small Cap mutual funds -image

Small Cap mutual funds vs Mid Cap and Large Cap funds

In this article, you can read an interesting study done on Small Cap mutual funds. Why small cap funds? Because it is a new exploration for me. I personally prefer to invest in stocks of big established companies. Why? Because such companies are less risky. They have a proven track record which

Read More »
MANI

MANI

Hi. I’m Mani, I’m an Engineering graduate who in pursuit of financial independence, has converted into a full time blogger. After working in the corporate world for almost 16+ years, I bid it adieu....read more

Leave a Reply

Your email address will not be published. Required fields are marked *

Discover more from GETMONEYRICH

Subscribe now to keep reading and get access to the full archive.

Continue reading