Over the Counter Investing
Dabbling in the stock market is a great deal of fun, but it also takes a certain amount of skill. However, over the counter investing is another thing entirely. An over the counter stock is generally offered by a company that's a lot smaller than most traded on the NYSE or NASDAQ. These companies are traded thinly, meaning that you might not have access to unlimited buying and selling.
Because of limited access, large price fluctuations are perfectly normal. If you cannot handle the psychological effect of an up-and-down market, you should consider investing somewhere else. However, if you can "roll with the punches", so to speak, you can use the tips provided in this article to help in your evaluation of over the counter stock.
The most important factor is your chosen company's potential for growth. Your company's earnings should increase by at least ten percent per year for the next five or six years, or you should take your business elsewhere. Now, look at the company's investments, cash flow, and inventory. These items should be, at a minimum, twice the size of any liabilities that are coming due- because the company is smaller, it needs a larger economic cushion.
Next, you should take a look at the amount of working capital per share of stock. For an over the counter company that number should be greater than the stock's market value- for example, a $14 stock should be backed by at least $16-$18 in working capital. The company should have at least ten investors as reported by S&P's stock guide. This can be a high benchmark for an over the counter stock, but it is still vital. You should also take a look at the company's balance sheet- there should be no operating expenses deferred whatsoever.
You would be remiss if you didn't find out more about the shareholders. Look for companies that have 500,000 to 1 million publicly owned shares. The ideal company will have no more than one-tenth of its stock owned by a single institution or individual. Also, look at recent stock splits and dividends. What happened afterward- did the stock price increase or did it decline? If it increased, that's a sign that the company is solvent and its investors are confident. A declining price makes the suggestion that company investors are "cutting and running".
Finding a reliable and profitable over the counter investment can be very difficult, but it can also be very rewarding. All you need to do is to find a handful of these little-known companies, and you could be making a lot of money in a short amount of time.