Penny stocks are a high risk but certainly high reward investment. When you pick a winner and the shares begin moving, gains can increase hundreds of percentage points. Of course you can lose as well. Picking winners is simply a matter of analyzing the right aspects of each company you want to invest in.

So just how do you find these great picks? If you will be doing your own research these 3 basic fundamental parameters are important in determining if you should pursue a penny stock further.

1. Company Should Have Increasing Revenues

Look for: Quarter over quarter increasing revenue shows that a company has a strong operational plan. Perhaps they are gaining market share. This is a good sign. This information is easily found on the companies financial statement. A bad sign is when a company has expenses increasing as revenues increase, or simply decreasing revenues.

2. Company Should Have Improving Earnings

Look for: A good sign is positive net earnings for consecutive quarters..the more the better. Earnings simply measures the amount a company makes above what it spends in operation costs. Only about 15% of penny stocks actually have positive earnings after all the smoke clears. This is net earnings were talking about...not earnings before interest, taxes, deductions and amortization.

3. Company Should Have a Competitive Advantage.

Look for: Companies that have an overwhelming advantage in their niche or industry whether in operations, supply chain /distribution, location, or intellectual capital. A good sign is if the advantage is sustainable and not easily duplicated.

If you don't like to research you can use a stock picking service that has a strong track record and is reliable and accurate. I would recommend tracking the picks you receive before spending any of your own money.

Believe me, whichever way you choose, whether you do your own research or use a penny stock picking service, revenues, improving earnings and competitive advantage are critical to making money in penny stocks.

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