Best Low-Float Penny Stocks

Read our Advertiser Disclosure.
Contributor, Benzinga
May 31, 2023

Occupying the speculative end of the investment markets, penny stocks consistently attract prospective buyers for their potential to deliver ridiculous returns. Much of this stems from their typical low float or the portion of shares that are available for public trading. Theoretically, low supply should support higher demand (prices).

Finding the best low-float penny stocks isn’t just about performing a numerical exercise. Be aware that such an investment class carries significant risk. Below are several factors to consider before placing your first wager.

Quick Look at the Best Low-Float Penny Stocks:

Best Low-Float Penny Stocks

According to basic economic principles, supply and demand represent the most fundamental tenets. In fact, both elements must be in place — willing buyers and sellers — for a product or service to have a price.

As mentioned above, the best low-float penny stocks are theoretically superior to high-float penny stocks because the latter implies dilution or an expansive share pool. In this case, too much supply necessarily extracts a demand penalty because each share of equity is less valuable when compared to a low-supply ecosystem.

However, it’s critical to realize that low floats represent only one side of the economic equation. The target investment must also make business sense as well; otherwise, it doesn’t matter what the float is.

Below is a list of best low-float penny stocks for your consideration.

Stock Movers

Gainers

Loser

Session: Feb 23, 2024 4:00PM EST - Feb 26, 2024 3:59PM EST

Are Low Float Stocks a Good Investment?

Undoubtedly, low-float stocks offer higher reward potential because of their favorable supply-demand equation. So long as some demand exists for the target stock, a lower float provides a higher value per unit of equity than compared to a higher float, all other factors being equal.

Because each unit carries more value, external events such as breaking news items lever a much higher impact. Actually, science underlines this concept. For instance, it’s better if someone kicks you with sneakers than with stiletto heels. This is because sneakers provide a flat surface area that distributes force, where a stiletto concentrates force across a minute area.

Yet it’s also crucial to recognize that low-float stocks are double-edged swords. On one hand, you certainly enjoy the potential of outsized rewards. But on the other end, a decidedly negative external event, like a disastrous earnings report, could see your position awash in red ink.

The best approach is to consider penny stocks with a balance between low float and a credible business narrative. Benzinga’s article Tuesday's Low-Float Du Jour: Castor Maritime featured a company that offered a favorable share count pool and a shipping business that caters to our globalized economy.

What are Float Shares?

As stated at the top, the float refers to the number of shares that are available for the public to trade. This is different from the outstanding share count, which represents the total number of shares held by all stakeholders, which include institutional investors and corporate officers and insiders, also known as restricted shares.

Calculating the float is outstanding shares subtracted by restricted shares. Another important point is that float shares trade in the secondary market, which you know as the stock market (i.e., NYSE, Nasdaq). Please be aware that secondary market transactions cannot affect the float count.

You can find further explanations and examples of the above concepts in the article, 3 Low Float Penny Stocks to Watch Before 2021 Up 70+% This Quarter.

Benefits of Low Float Stocks

Primarily, the benefits of low-float stocks involve the basic human desire to make as much money as possible with the least amount of effort exerted.

Huge upside potential: If a particular stock has a low float and the issuing company enjoys positive news — an outsized earnings beat or a product launch that resonated deeply with its target consumer base — the chances of a higher reward relative to a high float stock is much greater. This is based on fundamental supply and demand dynamics.

Less money upfront: Because low float stocks can move significantly on news items and other sentiment-related catalysts, you don’t need to put as much money into them relative to high float stocks (again, all other factors being equal). This is useful for determining a risk management strategy as high-float stocks typically require more money to enjoy satisfactory profits due to their low-percentage moves.

Risks of Low Floats Stocks

Although wagering on low-float stocks provides greater return potential, no such thing as a risk-free investment exists. Below are some headwinds you must be aware of.

Downside risk: Just as an encouraging development can boost companies with a limited share pool, a discouraging note could send the target stock cratering. That’s the other side to the story presented in the article, US-Traded, Low Float Chinese Stocks are Going Crazy. Incidents that don’t go your way could result in massive losses.

Availability dilemma: The reason why gold is so valuable is largely due to its rarity. But what happens if the precious metal suddenly lost its value? At that point, its rarity could become a liability as it would be much more difficult to find a willing buyer.

Potential Benefits of Low Float Stocks

Aside from the usual benefits associated with low float stocks, the below catalysts compel buyers to consider this investment category.

Longer-term viability: If you own shares of a low float stock, a higher potential exists that the underlying company will be more resilient against unforeseen industry and broader economic pressures. Primarily, this is because the target company has the ability to dilute shares to raise capital. In contrast, a corporation with an already diluted share pool may face pushback for such a move.

Possible transformative opportunity: If you buy enough shares of a low-float penny stock in a groundbreaking industry, it’s possible to get rich on a single trade. While the chances of this happening are minimal, it occurs enough (blockchain penny stocks are great examples) to entice investors.

How to Trade Low Float Penny Stocks

Due to the risks associated with low-float penny stocks, you must be on your game much more so than with traditional blue-chip stocks. Below are some key factors to consider.

Primarily, low-float stocks feature wide spreads or the difference between the bid (highest price a buyer will pay) and ask (the minimum that a seller will accept) prices. Wide spreads signify lower liquidity levels, which makes sense — low float means less supply available for trading.

Secondly, this investment category can move very quickly. As the Benzinga article, Low Float Stocks: What to Know and How to Trade Using Benzinga Pro explained, some companies deliberately keep their float low to capture speculator interest.

Still, because low-float penny stocks can also work against you during volatile periods, you want to spend time researching each potential candidate’s fundamental proposition. Merely betting on companies exclusively on their float is a recipe for disaster.

Indicators to Check Before Trading Low Float Stocks

Usually, seasoned traders will look at volume (or the number of shares traded during a given time frame) to help decide whether to engage a particular stock. High volume on bullish sessions indicates confidence in the trade.

Analyze volume trends. As a stock moves up in price, volume levels should confirm the move — as the price goes up, the volume should go up. If price rises without an accompanying rise in volume, you may be looking at a possible bearish setup.

Also, you should check the news stream for any developments brewing for your low-float stock candidates. However, this is a tricky situation. If you’re reading about a market-moving event, chances are, it’s already too late to react to it.

Instead, you must develop a keen eye and try to read between the lines. Filter out the usual PR fluff and try to find news or even rumors that carry some credibility. Here, it’s a good idea to initially focus on low-float penny stocks in industries that you’re familiar with.

Best Online Brokers for Low Float Stocks

Although low-float stocks feature nothing special about them, some brokers may not offer the most speculative companies within this investment category. Thus, if you’ve got your heart set on the low-float approach, you should consider these brokers below.

A Potentially Astute Methodology

Thanks to the core economic principle of supply and demand, low float stocks offer compelling upside potential. Mainly, prospective buyers who don’t have as much capital to work with can adopt the low-float methodology to increase the possible return of their investments. Yet nothing is without risk. While low floats can foster substantial rewards, a downside move in the market could derail your position.

Frequently Asked Questions

Q

What are low float penny stocks?

A

Low float penny stocks are shares in companies that are lower in price and have a limited number of shares available to the public.

Q

Are low float penny stocks risky?

A

Yes, low float penny stocks are considered a risky trade.

Q

Which low float penny stocks should I consider?

A

Check out Benzinga’s list of the best low float penny stocks above.

About Joshua Enomoto

His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.