Herein lies our quest with penny stocks. Our goal is to identify the perfect time to buy shares over the course of a company’s development. Get in too early and you could end up holding shares longer than you originally planned. Get in too late, and you might miss the ride…

The idea is to get in before a company begins to experience what I call super-traction. Super-traction is when the dam bursts and huge orders come rushing in — the point where a trend becomes viral. It’s also when your average investor hops on the bandwagon. And if you’re already holding shares, you can come out on top.

Look at the point where super-traction begins with trendy sandal maker Crocs Inc. (CROX: NASDAQ):

Right around the time of this small company’s IPO, the company’s revenue and earnings doubled on heavy sales of the company’s trademark lightweight, rubbery shoes. There was no turning back at this point. In the last 12 months, shares of Crocs are up more than 230%.

But getting in before super-traction catapults the share price is the tricky part. It’s all about realizing when sales are becoming strong, and a (often hidden) catalyst is on the horizon…

I’ve found another company with explosive growth potential is still hidden from many investors. You see, its business is changing. It used to distribute other companies products. Now, it has its own product line hitting stores in the U.S. And because its bottom line is taking a hit due to the company’s shifting priorities, this gem is cruising under Wall Street’s radar.

Here are the numbers: Sales of this company’s own products grew 97% last year, while the company’s overall growth rate was 28%. Now that the distribution arm is effectively gone, the company will realize faster growth. That’s just what we’re looking for in a penny stock…

And here’s the kicker: The company’s profit margins improve as it sells its own products. As everyday investors examine this company, they’ll probably glance over its sales growth and focus on the growing pains of this developing business. Now is your chance to use their miscalculation for your own gain…

Best,
Gunner
July 18, 2007

P.S.: You can get your hands on the name of this $60 million penny stock, along with a detailed analysis of one more scorching penny stock in the upcoming issue of Penny Stock Fortunes.

P.P.S.: If it’s bulletin board stocks you’re after, now’s the time to check out Bulletin Board Elite.

Investing in New Penny Stocks was originally featured in the Penny Sleuth.