Quantitative Valuations of Micro Cap Stocks

After you have identified a winner based on the management and products of the concern, one has to ensure the small cap stock is fairly or (better) cheaply valued. Differently stated, just because a small company has good management and good product does not mean that its valuation or stock price is the right entry point for an investor. A reputable online newsletter will provide both the micro cap company's growth prospects and why the stock price is currently cheap or at least reasonable.
Once can use the traditional metric of comparing P/E ratios as is very often done in the large and mid cap universe. Often in the case of micro cap stocks, however, this is not always easy to use as many high growth stocks ("hot stocks") do not currently have positive earnings but investors are merely betting on future earnings to come from hyper growth in revenues. Therefore one has to very carefully look at revenue growth and compare how the company is going to control the expense side when scaling up to produce and maintain earnings. When there are no earnings, price-to-sale and price-to-book can be two very good indicators to compare to other micro cap stocks.
Additionally, once the earnings are there, the PEG (PE to growth) ratio is possibly more relevant in a micro cap stock as you cannot compare PE ratios in a vacuum but only in relevance to the growth rate of the company. (The PEG ratio is attained by dividing the PE with the company's annual growth rate.)
In any case, when investing for out-sized growth in penny stocks, one should generally be very cautious in picking a newsletter that takes into account these fundamental valuations among others. For a decent starting point, you could visit a highly recommended site named www.hypergrowthstock.com that has consistently delivered great returns for its subscribers by providing them with an excellent list of micro cap and penny stocks after diligent analysis.

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