How To Understand That The OTC Stock Is Undervalued?
There are many theories, hypotheses and recommendations how to find cheap stocks. After reading many of them, I did not find the answer that suited me for 100%. Here you can see some of them:
First of all, you need to analyze the true value of the company, find out the fair price per share and compare it with the current one. If the prices are roughly equal to or even below fair market price, then shares are considered cheap. How to do this is a separate issue. The problem is that we do not always have reliable information on the company. Therefore, several people will get completely different data. To me, this is not exactly what a private investor would want.
Use the coefficient P/E. This is more close to reality. The lower the P/E, the lower the share prices are considered (or at least give a very good profit). Conversely, an increase in the price-profit ratio indicates that the value of the securities is overstated or the company showed a small yield for the reporting period. But here again we need to make a comparison. And you need to compare OTC stocks only from one sector. So, these figures are also very conditional, although useful.
Buy low and Sell high.
You can make some money when you buy at the peak, but the potential for further growth is low, and at the bottom the probability of falling is much lower than growth. The strategy “buy low and sell high” is really good for passive OTC stock investing, when the shares are held for years. When investors around begin to talk about the good prospects of a company it’s time to go away. Conversely, if everyone has lost interest and prices have fallen really deep — it’s time to think about the purchase.