Question: Small cap company becoming big time player in stock market?
9 months ago a certain Small cap stock become an IPO it was at less than $2.50 per share. Today it's at $27.50 per share. Now that stock is going up daily by about $0.59. It's still a small cap stock so it means there's still a LOT of growth potential. It's also outperforming in its industry competition, and outperforming a lot of other small cap stocks in general. The company is doing well with P/E, PSR, book value, income statement, cash flow, profits, the list goes surprisingly on. I want to invest in it because i see a lot more potential in it and it's numbers are performing well. I know i'm supposed to buy low and sell high, but i want to invest in it and just in case put a trailing stop and GTC order. Do small cap companies that look like they're performing well usually end up dying out eventually?
Answer:
That's a big gain in a short time!
Often this is the case.
Also their prices are particularly subject to external influences. I personally hold a few small cap mining stocks. When the GFC hit they lost around 70% of their value and have never recovered.
Small caps are often run differently to mid and large cap stocks. This is because shares are often used as incentives for potential financiers and big investors (not the little guys). This often leads to huge numbers of new shares being issued and the smaller investors share value being diluted.
Now I generally stick to the mid - big caps and invest for the longer term.
You can compare share returns over the long term with a margin loan using the money calculator on our site:
http://www.mymoneycalculator.com.au/
its a good idea to invest on the winning horses. if you think this horse is going to be a big winner, then you get into it.
There is always a downside risk, you need to find ways and means of mitigating these risks.
I suggest you buy it at different periods of time.
If you are planning to buy 100 shares, buy 10 every month. at anytime if it falls below 25 percent of its all time high, exit, dont stay in it any longer.