SINGAPORE (Aug 19): Did you know that the lowest price at which a stock can trade in the local market is $0.001, or one-tenth of one cent? Until very recently, I didn’t. It was one of those things that I never felt I needed to know.
While I am always looking out for fundamentally sound stocks trading at bargain prices, I have never had occasion to buy a stock priced at such low absolute levels. I’m not saying that companies with low absolute share prices necessarily have poor fundamentals. In theory, a company might have a low absolute share price simply because it has a large number of shares in issue. A company with 100 million shares priced at $1 each would have the same market value as a company with one billion shares priced at 10 cents.
In my experience, however, the lower a company’s absolute share price, the less likely it is to have a strong and growing business. Companies that are thriving, and that engage investors effectively, almost never have shares priced at just a few cents. And, if a company’s share price ever slumps into the ignominious sub-one-cent space, it is usually because something has gone terribly wrong.