Invest in the Company, Not Just the ProductPenny stocks—tempting, right? They grab attention with buzzworthy claims, seemingly overnight potential, and a tantalizing low price point. But most penny stocks ended up where they are for a reason, and when there’s hype surrounding one, it’s often a last-ditch effort to revive the company.
It’s easy to get swept up in the noise. Picture this: You’re sipping your morning coffee (or maybe a mimosa—it’s New Year’s Day after all). You’re optimistic about the year ahead, a little flush with extra cash after the holidays, wondering whether to buy something indulgent or keep it in the bank. As you scroll through your social media feed, you see it: a blurb about a penny stock that’s supposedly the “next big thing” for 2025. Suddenly, your plans shift. Investing seems like the responsible path, but you’re not just aiming for small yields—you’re dreaming of hitting it big. Next year, you could proudly say, “I got in when it was $3!”
Sound familiar? Let’s talk about this. Recently, someone asked me about a penny stock, Nutriband Inc. (NTRB). It’s trading at $4.68, with buzz around its development of an abuse-deterrent to fentanyl—an important issue, no doubt. The company is reportedly trying to fast-track approval by the end of 2025. My advice? Approach this like any other penny stock: with careful research and diversification.
Start with the Basics: Research the Company
When it comes to penny stocks—or any stock for that matter—the product might be flashy, but you’re investing in the company. Let that sink in. The company. Not just what they’re selling.
Begin by pulling up a chart of the stock. For NTRB, you’ll see it opened in 2018 around $5. By June of that year, it had hit $45.52, but what followed? A steady decline, punctuated by fleeting rebounds, until it hit the floor in 2021. This tells a story, but to truly understand it, you need to ask the five W’s:
Who started the company?
What is it really about?
When did it launch?
Where was it founded?
Why was it created?
These are foundational questions that provide context for whether the company is worth your investment. This information is often easy to find, and once you answer these questions, you can begin examining the stock’s key moments. Look at the peaks and troughs on the chart—each represents a turning point. What drove those changes? Did the company pivot from its original mission? Is the product they’re developing today aligned with their past trajectory, or is it a complete departure? Never assume; always verify.
Without this context, how can you trust the claims behind their product? Research the company thoroughly—it’s time-consuming, yes, but essential. And the more you do it, the quicker you’ll recognize the signs.
The Big Question: Who Else?
Here’s the fun part: after you’ve done the deep dive, ask yourself, “Who else is doing this?”
Nutriband may not be the only small company working on an abuse-deterrent for fentanyl. In fact, they likely aren’t. And while you might hesitate to invest in a bigger company, consider this: larger companies often have stronger foundations, better resources, and established processes for navigating regulatory approvals. Their fundamentals may not carry the explosive growth potential of a penny stock, but they’re also less likely to collapse under pressure.
Additionally, investigate the industry as a whole. What’s the approval process for a product like this? Are there target dates or industry-wide challenges that could delay progress? And most importantly, how does this fit into the broader landscape of healthcare or pharmaceuticals? These questions give you a clearer picture of whether the company’s vision is realistic—or just hype.
Avoid the Trap of Hindsight Bias
So, you’ve done all this research and realized you could’ve just pulled the trigger without it. Why bother, then? That’s hindsight bias talking. Falling into this mindset can lead to reckless decisions based on incomplete information. Research isn’t just about the trade you make today; it’s about building a disciplined approach to investing that serves you long-term. Don’t let the buzz or the surface-level appeal of a product override the need for due diligence.
My Advice on Penny Stocks
Rule number one: Don’t tell people how to spend their money—especially when it comes to gambling. That said, I was asked for my advice on NTRB, so here it is:
Research thoroughly: Know the company, not just the product.
Diversify: If I were to invest in penny stocks, I’d spread my investment across 3-5 of them. That way, even if 1 or 2 fail, you have a better chance of seeing returns.
Play the odds: Penny stocks are inherently risky. Personally, I’d rather take that extra holiday cash, book a flight to Vegas, and put $1,000 on a roulette column or dozen. The odds are similar, but the outcome is immediate, and if you win, you triple your money in seconds.
If penny stocks are your thing, be smart about it. Don’t fall for the hype. And if you’re not confident in your ability to evaluate the company behind the product, maybe it’s time to rethink whether this is the right investment for you.
-Bob Cavin 3
