Are Penny Stocks in a Bear Market?

[Stockcense_Team]

Are Penny Stocks in a Bear Market?

Stock market turmoil is here whether you've noticed it or not. The downturn of the entire stock market is happening for six months already, the professionals are well aware and the retail investing community is unfortunately learning the hard way. Are penny stocks in a bear market along with the rest of the market? I think the answer is obvious but some investors may not agree.



Identifying Penny Stocks

For the sake of argument, we will consider any security trading for less than five dollars per share a penny stock. Many times this is open for some discussion as some financiers consider stocks trading below ten dollars as a penny stock. Five hundred pennies is where I draw the line. Identifying penny stocks below this level will put this topic into perspective much better. As the entire market has trended down in recent months for various reasons, the penny stock world has been affected more than the remainder of the market.

Penny stocks entered a bear market as early as September of 2021. Some financiers refer to penny stocks as growth stocks. It provides a more general term for low priced securities not necessarily pinning them to their price per share. Well established, well seasoned, consistently profitable companies are the exact opposite of growth companies. So a penny stock company is in fact an unseasoned, not yet established, unprofitable company. This description makes it easier to understand why penny stocks are in a bear market.

Is It a Good Time to Invest?

Some people find a silver lining in current market conditions particularly in the realm of penny stocks or growth companies. The entire spectrum of low priced securities is down therefore making it a good time to invest if you can weather some downtime. The problem with investing in an unprofitable company during times of economic downturn is cash burn. Cash burn, or using shareholder funds to finance the company when it is unprofitable only adds to the risk with the penny stockers. This situation of using company cash resources is exaggerated when the surrounding economy is struggling.

In recent years, retail investors have pumped cash into low priced stockers thanks to a high energy economy and recent stimulus check being deposited in checking accounts across the country. The pandemic left many cash heavy, internet savvy citizens trying their luck in the stock market. New investors are always drawn to low cost securities first by default. This novelty seems to have worn off for now and created a penny stock bear market. As free cash dissipates from the market, the growth companies were the first to feel the pain. Combine the lack of fresh cash flow with an overall economic downturn and you have an elevated risk for sure.

The likelihood that penny stocks can pull out of this dilemma is not very good in the short term, however those that can withstand the risk and are also capable of exhibiting patience may be rewarded handsomely in the long run. You can ignore the penny stock bear market and try to capitalize on it, or not...

Learn more in our penny stock forum

[dazzle]

Penny stocks in general will be in a bear market for 1 to 2 years minimum. The Fed's rate hikes affect penny stock companies far more than the big boys.

[bigmarket]

Companies at the growth level are affected exponentially more than a large cap. Invest wisely with a capital W. You're going to need patience if you have money tied up and you have to be comfortable with that.

For new money I would avoid anything on the penny level right now

[bigmarket]

Update to the penny stock bear market... This is usually the time of year where these growth names and micro cap retail stock wake up. I don't think the penny stock bear market is over, but you may have your best chance of swinging some of these names in the near term. I definitely wouldn't bank any major capital here for the longer term though. There is still overall lingering issues with the global economy.

[joker]

It will be interesting to see if the small caps and micro caps can get some traction, they look lost overall. I think the market needs to stabilize first, then we may see the penny stock bear market start to dry up

[oscartg]

Penny stocks come alive when the SPX runs out of steam. That seems to be the best way to describe the penny stock market.

[crunch]

Penny stocks should do well this time of year, S&P is running out of steam I think

[heck_with_you]

Inflation is killing the small caps and micro caps. The only way to sink inflation is to sink the many overblown social programs in this country. Too many people without jobs, yet still have overflowing shopping carts at the store. It's called welfare induced inflation and can easily be controlled if they wanted to, but no politician wants to touch it.

Remember "welfare induced inflation" and let's see which politician tackles it...