To predict the future growth potential of a company when choosing your penny stock you'll need to look at the 10-K and 10-Q financial statements very closely. You must look for information such as earnings per share, book value, price to earnings ratios (PE), and the current stock price compared to the past 52 weeks.

You should also carefully study all five categories of the annual report.
Study the .. The Consolidated Balance Sheet, The Income Statement,
The Statement of Changes in Financial Position, Statement of Retained
Earnings, and Notes to the Financial Statements.

You want to find companies that have a excellent track record of good
management, good products, aggressive sales and marketing strategy,
and a growing and loyal customer following. If these criteria are present,
along with good fundamentals, you will be on the right track.

The sole purpose of fundamentally analyzing a company is to zero in on
a company whose penny stock price is undervalued compared to it's real worth.
Simply put, the stock is selling for less than it's worth. This is what you're
looking for, and this is what you want to buy.

By recognizing a good stock that's undervalued (before everyone else)
you can get in at the bargain-basement price and ride the wave up. This is
why you will search for stocks trading at their 52 week lows. If they meet
all the fundamentals, you'll be getting in, at precisely the right time.

If the company is fundamentally sound and trading at a 52 week low, then there's a excellent chance that the stock will be more likely to move up,
rather than down. A little good news is sometimes all that's needed to put
the stock back into a upward trend.

And remember! Most of the stocks that you'll be following will be the one's
that have a history of cycling up and down over a (2 or more year) period
of time. By analyzing these types of stocks and buying in at the 52 week
low price, you'll be limiting your downside risk (although not totally).

Buy these stocks at the 52 week low when no one else in the market is
interested. Buy enough shares so that a small move can return hefty
profits. When other people start buying the stock and driving the price up
to it's yearly highs, you want to be selling and getting out with your profit.