Comment on The Motley Fool: Penny stocks are no way to build wealth

The Motley Fool: Penny stocks are no way to build wealth

Q: Since penny stocks are so inexpensive, I can buy thousands of them, which can make me richer faster, no? - H.E., Wilkes-Barre, Pa. If the $60 stock is tied to a healthier company with competitive advantages, actual revenue and profits, and a lower valuation (perhaps as suggested by its price-to-earnings ratio), it's likely a much better bargain than the $1 stock. Accounting problems have pressured the stock and may potentially delay the spinoff of its equipment business, but there's a lot to like in Hertz. First off, the restatement is focusing on expenses, not aggressive revenue recognition policies or anything that suggests dramatic wrongdoing. With the car-rental industry consolidating in recent years, having fewer competitors can prop up prices and profit margins for Hertz. The move will give the company net proceeds of $2.5 billion, which will be used to pay down debt and reward shareholders via share buybacks (which reduce share count and thereby boost earnings per share).

 

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