The stock market has been performing well recently, with analysts predicting even more gains in the future. This optimism is fueled by the possibility of interest rate cuts later this year, prompting investors to take on more risk in the equity market. However, it is important to be cautious when considering penny stocks.
Penny stocks may seem attractive, but they come with significant risks. These stocks are known for their high volatility and low liquidity, leading to drastic price fluctuations. Additionally, many penny stocks are not strong businesses fundamentally, increasing the likelihood of substantial losses. It is crucial to protect your portfolio from unnecessary volatility and potential losses by avoiding these penny stocks.
One example is Skillz (SKLZ), a leading online gaming platform that gained popularity during the pandemic. Despite its initial success, Skillz has faced challenges such as rising customer acquisition costs and difficulty in retaining users. The company has reported negative revenue growth for eight consecutive quarters and has struggled to achieve profitability. Recent financial results have been disappointing, with a significant drop in revenue and a substantial net loss.
It is essential to be cautious when investing in penny stocks and low-volume stocks, as they can be manipulated by scam artists. InvestorPlace typically does not cover companies with a market cap of less than $100 million or those that trade less than 100,000 shares per day due to the risks involved.
As an investor, it is important to conduct thorough research and make informed decisions when considering penny stocks. By being aware of the risks and potential pitfalls associated with these investments, you can protect your portfolio and make sound investment choices.