Known for their uncommonly pronounced risk/reward profile, penny stocks all too often entice investors with their low prices and potential for significant returns, only to fail to live up to those expectations. The world of penny stocks is also characterized by pump-and-dump and other scams, facilitated by the fact that most penny stock companies do not have an extensive history of financial reporting or an established brand name and presence.
This is all to say that investors should be cautious of any penny stock, particularly one that appears to be too good to be true, as it might be part of a scam worth hundreds of millions of dollars. On the other hand, investors who are comfortable taking on a higher degree of risk and prepared to research potential investment targets thoroughly may uncover tremendous deals.
