What You Should Know about Market Share for Penny Stocks
Market share is an indication of what portion of a total market a company owns. In other words, a penny stock company’s market share tells you the percentage of its total sales within an industry. If the total sales in the market for hot sauce remover spray are $100, a company selling $20 worth of the stuff would have a 20 percent market share.
The ideal is for a company to have 100 percent of a huge and rapidly expanding market. (Good luck finding that company.) Smaller markets and smaller shares are less desirable, and if the industry is shrinking, that’s an even worse situation for the company.
With market share, it is important to know these factors about a company:
Total market size: How much money are consumers spending on a particular service or product, in total? Larger markets generally mean that there are greater opportunities for generating revenues but that there are also more competitors.
Potential market size: Especially when dealing with a growing market, such as many penny stocks are involved with, the potential size is particularly important. An industry may only sell a small number of its wares right now, but if that market is expected to grow many times larger, the penny stocks already engaged in the space will benefit.
Ownership by each competitor: Besides the market share owned by the company you’re interested in, you also want to know the share claimed by each competitor. One company owning 95 percent of the market has different implications than if that 95 percent is divided among 40 companies.
Change in market share: Changes in market share can reveal effectiveness of marketing efforts, product acceptance, and company progress. When a penny stock sees its share go up 5 percent at a time when its competitor’s share declined by the same amount, perhaps it is stealing customers away from that competitor.
Any time a company is selling something, it has a share of the total market. You can add a lot of clarity to your investment research if you know what percentage each player in the industry lays claim to, how large the market is and may become, and what changes are evident in terms of total share.
How to find out the market share for a penny stock
The quickest and best way to find out a penny stock’s market share is to call the investor relations of the company. Any business worth its salt should know what share of the market they capture, as well as the total market size.
Sometimes companies comment on their market share in their quarterly financial reports. Keep an eye on this percentage and watch especially for changes from one period to the next. You can also get the total market size estimates from competitors in the same industry.
To calculate the percentage of market share for a company, divide the company’s annual revenues into the total market size in terms of sales.
How to profit from changes in penny stock market share
For penny stock investors, a much more important value than a company’s market are changes and expectations in that value.
When a penny stock reports increases in its market share, that movement can imply higher revenue levels, as well as a greater degree of customer acceptance for its wares. When those gains come in line with other competitors losing ground, it can suggest a shift among consumers.
Whether the bigger players are losing business on their own, or the smaller companies are taking those customers away, this could be an opportunity for penny stock investors. There will be a lag between when a penny stock sees an increase in its market share and when the stronger financials that result from that increase are reported.
Investors who buy companies that are enjoying an expanding market share, but who do so before the financial results are reported, may benefit from an upward move in the share prices when the increased revenue numbers become public.
Watch for improving market share in companies, and expect improved results to help the stock prices after they’re eventually reported.