Penny stocks refers to the share price, not the company’s overall value. Small cap stocks, on the other hand, are defined by their market capitalization, which is the total value of the company.
Small Caps or micro-cap stocks are defined by how much the whole company is worth or it’s total market cap. The price of penny stocks doesn’t tell you the market worth of the company you are investing in or the size or value of the entire company.
That is why classic penny stocks are generally considered highly speculative investments because it is simply the companies that trade with a very cheap share price and the share price is highly volatile.
Most investors are looking for stocks to buy that are smaller companies trading for less than $5 but that have a market cap over $50-$100 million for increased liquidity as under this valuation the stocks are often thinly traded and are higher risk. It’s hard to get your money out.