Penny stocks have a moment as tiny companies IPO for $4 a share

Core Insights - Penny stock IPOs are experiencing a significant resurgence, with over 90 IPOs in 2024 compared to 77 in the previous year, marking levels not seen since the 1980s [2] - The current market conditions, including commission-free trading apps and a focus on cryptocurrency by regulators, have created an environment conducive for small companies to enter U.S. markets [2][9] - Despite their low price, penny stocks have a poor track record, typically losing 60% of their value over three years and underperforming the broader market by approximately 90 percentage points [3] Group 1: Market Dynamics - The rise in penny stock IPOs is attributed to factors such as low interest rates, stimulus checks, and the popularity of trading apps like Robinhood, which have made speculative investing more appealing [5] - The SEC defines penny stocks as those trading below $5 per share, which has attracted both legitimate businesses and questionable operators seeking to access U.S. capital markets [6] - Structural issues often plague penny stocks, where an influx of shares can lead to market valuations that exceed the company's realistic support, resulting in price drops [7] Group 2: Historical Context - Penny stocks thrived in the 1980s until stricter Nasdaq listing requirements and SEC regulations effectively curtailed their prevalence [4] - The current wave of penny stocks includes many small companies from China and Hong Kong, often described as small restaurants and obscure manufacturers, rather than established firms like Alibaba [8]