The transition from dirty energy towards cleaner energy sources presents a big money-making opportunity for investors.
More so when you invest via penny stocks.
A quick way to earn fast returns, penny stocks can be a great way to create wealth. However, it is not as easy as it seems.
While penny stocks carry the potential to multiply your wealth ten-fold, they can also erode your entire investment value.
So, it is important to do your research. Understand the sector and analyse the company before you invest in it.
For instance, the primary risk to earnings in solar energy, one of the largest renewable energy segments, is technological uncertainty.
The rapid technological change often reshuffles the companies in the supply chain. Moreover, the inherent irrational pricing system hampers the ability to predict revenue streams and profitability.
Such knowledge can prepare you to handle the risks and swings that come with investing in penny stocks in the renewable energy sector.
A good way to start is to go through the existing players in the renewable energy sector.
You can also checkout our playlist on Renewable Energy Stocks on Equitymaster's YouTube channel.
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Based on marketcap, these are the top renewable energy companies in India:
You can see the full list of renewable energy stocks here.
And for a fundamental analysis of the above companies, check out Equitymaster’s Indian stock screener which has a separate screen for best renewable energy stocks in India.
Within the Renewable Energy sector, the top gainers were WAAREE RENEWABLE TECH (up 5.0%) and INSOLATION ENERGY (up 3.5%). On the other hand, ADANI GREEN ENERGY (down 8.2%) and SHIGAN QUANTUM (down 5.6%) were among the top losers.
Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.
Two commonly used financial ratios used in the valuation of stocks are -
Price to Earnings Ratio (P/E) - It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.
Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.
To know more about the energy sector's past and ongoing performance, have a look at the performance of the NIFTY energy Index and BSE energy Index.
Penny stocks are shares of listed companies priced below Rs 100. In the US market, these stocks trade for less than a dollar i.e. for pennies. Hence the name.
Penny stocks have the potential for above-average returns. However, they are extremely risky. Therefore, investing in them requires care and caution.
You can see the list of Indian penny stocks and how they are performing here...