The performance of a penny stock can be gauged by its past performance to a certain degree. You cannot know how the stock will do based on past performance but you can see how the stock reacts to certain market conditions that are likely to repeat.
Markets move in cycles, going up and down in waves that react to political and economic events. Even in this recent financial downturn there have been up and down periods. If you maintain a penny stock to watch list or are monitoring activity of a stock your currently own, you will want to look back and see how the penny stock performed in up and down periods. A stock that lost a large percentage of its value does not have a strong support base. Its investors do not believe in it enough to endure a bad market. The company might not have strong fundamentals that would allow it to persevere in a recessionary period. Investors know this and sell the stock when the market and economy slow down. You would not want to own this stock if there is current or an upcoming slow down in the economy or the market, regardless of how short term it might be.
On the flip side, a penny stock that beats the returns of similar penny stocks in an up market means that it offers something that similar companies lack. Analyze what is attracting investors to this stock. If the attraction is a long term factor that should continue regardless of the condition of the economy, the stock should continue doing well for a while. Depending on what the factor is, it could be a monopoly in an emerging marketplace that could fuel long term price growth. If the company has enough good going on, it might even do well in a down market.
Although you often see the disclaimer that "past performance is not indicative of future results", past performance can be a good indicator in your pursuit of finding the best penny stocks.
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