If someone buys a share for a penny and reaches a pound, their return will be 10,000%. Buying the same participation in 50p and seeing that he hit the pound, means the return of a much more modest 100%.

This logic has an attractive element. But it is also highly simplified.

Some penny actions turn out to be screaming occasions. Others, however, fall until they are worthless.

Is being a penny price economical?

How to value shares

The answer is definitely “not necessarily”.

Share of a penny power Be economical – but it can be extremely overstated. The same applies to sales share for £ 1 or 1000 GBP.

This may seem surprising. But the share is for sale, just like a cup of coffee, a car or a house. Looking at these things, they tend to judge what we think are worth and As it compares to the starting price.

The same applies on the stock exchange. Whether a penny action is economical or not just does not apply to its price. The point is whether the price is above or below what is really worth.

This is where things can get complicated. As you can see from their share price movements, investors usually cannot agree on how large, well -established business Astrasenec Or HSBC It can be worth it. So how can they hope to agree the value of the share of a penny?

Often (though not always) such actions have either an unverified company, or one that has not yet proved to be profitable on a vast scale in a way that looks balanced.

Hunting for possibilities

This can open a potential opportunity for investors. Some Penny shares could escalate if their unverified business model were good.

This level of risk may match some investors, but it is usually above what I am looking for.

However, there are some penny actions that have proven business models and still look like offering potentially good value from a long -term perspective.

For example, Topps tiles (LSE: TPT) sells one in five tiles bought in Great Britain. It has a mighty brand and has expanded its multi -channel offer in recent years, using professional brands to lend a hand potential buyers, such as builders and architects. Dividend also pays.

Despite this, the price is currently 11% lower than five years ago. During this period he reached a double current level, then fell.

As in the case of all actions, TOPS faces risk. The uncertain real estate market can lead to postponement or cancellation of sales. But I see it as a promising sign that the general corrected sales of the company showed an escalate of 10% year -on -year in the last quarter. The acquisitions helped, but the height is still an escalate.

Trade in pennies, I think Topps may be economical from a long -term perspective. That’s why I plan to stick to my actions.

Most importantly, this is not economical just because it is a penny. In the end he sold for pennies, even when it was twice the current price a few years ago.

Rather, I see as economical in relation to what I think – and that’s why it shares in it – they are worth. So I think it’s worth considering.