Before you invest in any penny stock, call the investor relations contact at the company. In addition to ascertaining the legitimacy of the stock, you will get a much clearer picture of their overall situation.

To get the most out of your brief call, you need to ask the right kinds of questions, such as the following:

  • How large is the potential market for your product? Of that, what is your company’s market share?

  • How many employees do you have? How does that compare to three years ago?

  • Who are your biggest competitors? What would they say about your product?

  • How many of your employees have been with the company for less than two years? What is your employee turnover rate?

  • Where did the CEO work before joining this company? For how long? Why did she leave that position for this one?

  • Where do you see this company in a year? Three years?

  • What are the primary sales drivers for this company?

  • What are the biggest risks and threats to the company?

  • What percentage of customers stop using your product? Why do they stop using it?

  • How much more money will you need to raise to keep operations going?

  • What is the company’s growth rate in terms of sales? How does this compare to the industry average?