Investing in a small company with a low share price
Some companies will perform amazingly well for you, and the stuff of legend is a company that, say, increases in value 15 times from what you bought it over a timeframe of something like ten years. Although that of course is quite rare!
In terms of those that can potentially become huge and have that stock market price increase, the sector that many will naturally think about is technology. Another one would be something like an oil exploration company: because if they suddenly hit lots of liquid gold, as oil is sometimes referred to as, then they could have the rights to a massive pool of liquid money sitting in that reserve.
Of course with the potential for great upside generally comes greater risk: and these companies are also a much riskier investment, because if the oil company uses up all its money digging and drilling but finds nothing, then what does it have left? And when that internet retailer that looked about to take over the world suddenly has a flop in traffic or simply can't pay the bills, then it has a website and stock with nowhere to go.
Assessing what will flop and what will soar is very hard, and some think it is practically impossible, a bit of a lottery. As ever, looking at the financials can provide some insight, and the price to earnings to growth ratio called its PEG can be of help. Here generally a company that could potentially soar will have a PEG below 1.
A lot of the potential opportunities will also be shares on the AIM market rather than FTSE, or the Alternative Investment Market. This is for smaller companies and those that are currently growing and not in a ready state for the FTSE.
More investment related articles:
- How to value a potential investment
- Investing in Funds
- Different types of fund explained
- Questions to ask before investing
- The trend is your friend: or is it
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