10. Watch out for the little things -- they can add up fast!
Little things mean a lot: It's true in all walks of life, and evaluating small-cap stock opportunities is no different. If the fundamental analysis, pie-in-the-sky promises or management resumes are inconclusive, other seemingly inconsequential minutae buried in the prospectus can flash as clear a warning as any.
Observe the list of market makers. Research the kinds of issues each firm underwrites, if possible. Has the market maker engaged in a history of small-cap activity? If so, how have those stocks performed? If the company has only one or two market makers, the stock stands highly vulnerable to price manipulation. There more market makers exist for a given stock, the more likely they are to bid against each other and the price will more likely move to a true "market" price.
Note the filing date required by the SEC, posted in the company's periodic financial reports. If the filing date is far out of whack with the report date (i.e., December 31, March 31, et. al.), this is a delinquent filing and probably symptomatic of much deeper problems. (Companies have 45 days from the end of a quarter to file a 10-Q and 90 days from the end of the year to file a 10-K.)
Study the stock's trading history. Are there any unexplained trading suspensions? Has a typically thinly-traded stock experienced sudden and unexplained surges in trading volume? Is there are a sudden dilution, or history of dilution, in the number of shares outstanding? When promoters obtain huge numbers of shares at deeply discounted prices, or for free, the holdings of the other shareholders is immediately watered down.
Finally, don't forget to check the section covering litigation and investigations. The prospectus will disclose all lawsuits filed against the corporation, as well as any pending government investigations. If this section paints a dark picture, stay away from the stock.
When it comes to small-cap stocks, trust no one except yourself and your sound judgment. You'll have no trouble finding small-cap companies that will trip over themselves highlighting their positive points; they're not so forthcoming in revealing their negatives The truth is out there -- but, like the conspirators in The X-Files, it is sometimes hard to find.
Conclusion: Things Are Looking Up
Despite all of the problems with small-cap stocks, there are many legitimate companies whose securities trade on Nasdaq and on the over-the-counter market at very low prices. After all, struggling young companies have to start out somewhere. Investment in such companies, held through the formative years, can pay off extremely well.
Over the past decade, the SEC has instigated many market reforms and Nasdaq officials have tightened scrutiny as well. As a result, the managements and fundamentals behind many small-cap companies have dramatically improved. Some of these firms represent the best relative bargains in the market today, and they grow and prosper in relative obscurity.
Internet sites such as this one can assist your search. But you must search hard. And never stop looking for the pitfalls along the way.
All materials copyright c 1995-98 Axxess, Inc.
(OTCBB: AXXS), except where indicated. All
rights reserved. Stock Detective is a trademark of
Axxess, Inc. Please click here for our Disclaimer,
Terms of Use Policy, and trademark information.
For questions or comments about Stock Detective or other web-publications of Axxess, Inc. contact kevin@axxessinc.com. For advertising information Click Here for our Rate Card, or contact Kevin Lichtman at Axxess, Inc. Web design by Axxess, Inc. If you would like an "Axxess Quality" web site for your business please email info@axxessinc.com or contact us at:
Axxess, Inc.
201 Park Place, Suite 321
Altamonte Springs, FL 32701
ph. (407) 834-4443 |
