Can penny stocks make me rich? Maybe. But they’re risky because of the smaller size of the underlying businesses. So, before buying, thorough research is even more important than ever. What is a penny stock, exactly? I like the definition that it’s a company with a market capitalisation under £100m and a share price below £1. However, that knocks out a few promising candidates because their share prices happen to be above £1, despite having market capitalisations below £100m. On top of that, I’m ignoring companies with a market capitalisation below £50m – they’re too small for me. The first question I’d ask, is why is the company a penny stock? Sometimes firms end up with penny-stock status after shrinking from being larger businesses. In most cases, shareholders will have endured a grim time. So I’d avoid those because the best we can hope for is a turnaround in fortunes. But why bet on that scenario after a business has just demonstrated its tendency to underperform? Good examples of such laggards can be found in digital clothing and footwear retailer N Brown and oil and gas company Pharos Energy. Another breed of penny stock is the purely speculative business with...