We do receive many queries over mails about investing in low priced penny stocks. Investors many time looks at low price stock to decide whether to buy or sell. There is a myth that if price is low, there are better changes for the scrip to go up.
Suzlon Energy which made all time high of Rs. 440 (adjusted price) on 09 Jan'12 is now available at Rs. 18. Investors ignoring fundamentals and looking at high / lows of scrip invested in Suzlon at Rs. 100 and later in the range of Rs. 40-50 thinking its cheap looking at price and finally getting trapped. There are many such stocks like Lanco Infratech, GVK Power etc. No doubt, these are good companies but valuations based on fundamentals are not attractive for investment. Why share holders will stay invested in such companies knowing the fact that these companies are debt ridden and would not be able to generate free cash flows atleast for next 4 to 8 quarters.