A penny stock is a share that trades at a low price, typically under $1, on the Australian Securities Exchange. They are sometimes called cheap shares or cent stocks. The label is about price, not company size, though in practice most penny stocks are also small or micro cap companies.
Penny stocks are common among junior miners, early stage biotech companies and pre revenue technology businesses. These are companies still proving their business model, their resource or their technology, which is exactly why the share price sits so low.
The appeal is obvious: a low entry price and the potential for multibagger returns if the company delivers on its story. The reality is less comfortable. Most early stage businesses do not survive. Roughly 80 percent of early stage companies do not make it past 10 years, and the ASX penny stock segment is no exception.
This is also where the line between a penny stock and a quality small cap matters. A penny stock is defined purely by its share price. A quality small cap, in UTRR’s view, is defined by fundamentals: real earnings, real management and a real competitive position, regardless of what the share price happens to be. Some of the best small cap opportunities started life as penny stocks. Most penny stocks never make that leap.
