Are penny stocks risky to invest in?

Penny stocks represent a volatile and risky part of the stock market, and many investors have suffered big losses investing in them.

Can penny stocks pay dividends?

Penny stocks can pay dividends, but it is not common. In many instances, penny stocks trade at low pure-dollar prices because the underlying business has been struggling. Companies that are not generating sufficient cash flows often suspend their dividends if they had previously paid them.

Are penny stocks more volatile than other stocks?

Penny stocks tend to be more volatile compared to the broader market. While even well-established blue chip stocks can wind up seeing high levels of volatility in relation to business performance and other dynamics, penny stocks have characteristics that predispose them to outsized pricing swings.

What industries have the most promising penny stocks?

While there's no surefire way of knowing which industries will have the best-performing penny stocks going forward, technology and biotech may offer the most promising return potential for investors. Small companies in these industries may have highly speculative outlooks and the potential for breakthrough products that catch the market off guard and lead to very strong returns for shareholders.

What should I consider before investing in penny stocks?

Investors who are interested in investing in penny stocks should consider the high level of risk that typically comes with purchasing these equities. While some penny stocks may go on to deliver explosive returns, it's important to consider the characteristics of the underlying business and assess your personal risk tolerance. With so many well-established companies available to own, there's often little reason to settle for the highly risky penny stocks.

Which penny stocks can boom?

Predicting booms for individual penny stocks is difficult. Big surges and declines for stocks in the category can sometimes be completely separated from the outlook for actual business. Moves for penny stocks sometimes occur virtually at random. On the other hand, there are basic strategies that investors can employ to help boost their chances of success with penny stocks. For starters, investors should concentrate on companies that have at least some products or strategic initiatives on the horizon that can meaningfully bolster future performance. Along those lines, concentrating on companies in the tech and biotech industries could give investors a better chance at success. At the same time, investors should understand that each company should be evaluated closely on an individual basis -- and positive narratives surrounding individual penny stocks may be widely out of touch with fundamentals and forward performance results.

How to avoid losing money in penny stocks?

There is no guaranteed way to avoid losing money on penny stocks. Investors can set stop-loss orders that will cause shares to be sold when pricing reaches a certain level, but this protectionary measure doesn't completely eliminate downside risk. Similarly, investing in companies with at least some financial flexibility and feasible growth opportunities on the horizon can help mitigate losses over the long term. Investors should understand that penny stocks tend to be highly volatile, and buying shares in these companies comes with outsized levels of risk.

Best Penny Stocks of 2026: Are They a Good Investment?

By Keith Noonan – Updated Feb 20, 2026 at 8:24 PM EST | Fact-checked by Frank Bass

Key Points

Penny stocks typically trade below $5, often lacking solid financial foundations and facing high volatility.
Investors are warned of significant risks, including pump-and-dump schemes and potential total investment losses.
For better risk-reward balance, consider high-quality companies or fractional shares of pricier stocks.

Penny stocks, shares trading below $5 with market capitalizations under $250 million, attract investors looking for outsized returns at a low entry price. The appeal is understandable: buying early into a small company before it grows into something much larger is one of the most rewarding things you can do as an investor. But penny stocks come with real risks that every investor should understand before diving in.

We'll show you the top penny stocks, explain what to look for when evaluating them, and outline the risks so you can invest with your eyes open.

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Many penny stocks are traded so cheaply because the businesses behind them aren't worth much more than that.
Tom and David Gardner, Co-founders, The Motley Fool.

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Ticker Information Table
Name and ticker	Market cap	Dividend yield	Industry
Expion360 (NASDAQ:XPON)	$6.5 million	0.00%	Electrical Equipment
Inspire Veterinary Partners (OTC:IVPR)	$243.9 thousand	0.00%	Healthcare Providers and Services
Cognition Therapeutics (NASDAQ:CGTX)	$92.7 million	0.00%	Pharmaceuticals

Data as of Mar 15, 2026. Showing 3 of 3 tickers.

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1. Expion360

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NASDAQ: XPON

Expion360

Today's Change

(-1.19%) $-0.01

Current Price

$0.67

Key Data Points

Market Cap

$6.5M

Day's Range

$0.67 - $0.70

52wk Range

$0.60 - $5.50

Volume

149K

Avg Vol

1.2M

Gross Margin

21.17%

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Expion360 (XPON -1.19%) is a battery-technologies specialist that designs and manufactures lithium-iron-phosphate batteries. The company produces batteries for recreational vehicles (RVs), marine applications, golf carts, and other industrial and residential purposes.

2. Inspire Veterinary Partners

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OTC: IVPR

Inspire Veterinary Partners

Today's Change

(-4.76%) $-0.00

Current Price

$0.00

Key Data Points

Market Cap

$244K

Day's Range

$0.00 - $0.00

52wk Range

$0.00 - $2.16

Volume

4.4M

Avg Vol

74M

Gross Margin

11.90%

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Inspire Veterinary Partners (NASDAQ:IVP) is a company that owns veterinary and animal care practices and had its initial public offering (IPO) in 2023. Inspire purchases veterinary businesses and associated real-estate holdings and aims to improve the sales and efficiency of these businesses.

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3. Cognition Therapeutics

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NASDAQ: CGTX

Cognition Therapeutics

Today's Change

(-2.78%) $-0.03

Current Price

$1.05

Key Data Points

Market Cap

$93M

Day's Range

$1.05 - $1.10

52wk Range

$0.22 - $3.83

Volume

Avg Vol

853K

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Cognition Therapeutics (CGTX -2.78%) is a clinical-stage biotech company that is trying to develop treatments for Alzheimer's disease and dementia with Lewy bodies (DLB), among other degenerative central nervous system disorders. As a clinical-stage biotech, Cognition Therapeutics does not yet have any treatments on the market -- but its stock could see big gains if favorable data emerges from its trials.

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Penny Stocks FAQ

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About the Author

Keith Noonan is a contributing writer at The Motley Fool covering technology, consumer goods, and other sectors. He holds a bachelor’s degree in English from Boston College.

TMFNoons

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Risks of trading penny stocks

Penny stocks come with substantial risks compared to those of ordinary stocks. The risks include the following:

Penny stock companies are tiny. Most publicly traded companies are large businesses that clearly demonstrate their value, which typically ranges from hundreds of millions of dollars to $1 trillion or more. By contrast, the companies that issue penny stocks are generally tiny, with even the largest penny stock companies typically valued at much less than $100 million.

Penny stock companies are unproven. It's rare for companies that you've already encountered in your daily life to be among the ranks of penny stocks. Rather, penny stocks are usually those of less-established companies that haven't proven they can endure and succeed.

Penny stocks often don't trade on major stock exchanges. While penny stocks can be listed by the New York Stock Exchange (NYSE) or the Nasdaq Composite Index (^IXIC -0.93%), that's usually not the case. Instead, penny stocks typically trade over the counter, or OTC. Companies whose stocks trade on the OTC market are subject to less rigorous reporting requirements than those included in the NYSE and Nasdaq. Efficiently buying and selling shares of penny stocks can also be comparatively difficult because stocks that are less frequently traded are less liquid, meaning that wide ranges between bid and ask prices are common.

Penny stocks are sometimes the targets of pump-and-dump schemes. Con artists often target penny stock investors by promoting a penny stock company as the next hot investment. Building hype about a penny stock can pump up its share price, and the price increase itself can be misleadingly cited as evidence of the company's success.

Best Penny Stocks of 2026: Are They a Good Investment?

Key Points

1. Expion360

NASDAQ: XPON

Key Data Points

2. Inspire Veterinary Partners

OTC: IVPR

Key Data Points

3. Cognition Therapeutics

NASDAQ: CGTX

Key Data Points

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NASDAQ: XPON

Key Data Points

Penny Stocks FAQ

Are penny stocks risky to invest in?

Can penny stocks pay dividends?

Are penny stocks more volatile than other stocks?

What industries have the most promising penny stocks?

What should I consider before investing in penny stocks?

Which penny stocks can boom?

How to avoid losing money in penny stocks?

Top penny stocks

1. Expion360

3. Cognition Therapeutics

What to look for when choosing a penny stock

Better alternatives to penny stocks

Related investing topics

FAQ

OTC: IVPR

Key Data Points

NASDAQ: CGTX

Key Data Points

2. Inspire Veterinary Partners

How penny stocks work

Risks of trading penny stocks