For the novice investor, the temptation is both mathematical and human: it seems easier for a share to go from EUR0.10 to EUR0.20 (a 100% gain) than for LVMH shares to double from their current level, for example. This cognitive bias underpins the vast penny stock market. However, behind these tiny headline prices often lies a complex and unforgiving financial reality. Forewarned is forearmed.
In the literal sense of the term, a penny stock refers to a share that trades for a few pennies (or cents). However, the financial definition goes well beyond the price tag. A penny stock is, above all, the stock of a company that has a very small market capitalization (often referred to as a micro-cap or nano-cap ).
These are companies that fly under the radar of mainstream investing because their risk-to-reward profile is extremely unfavourable. Generally, the firms concerned fall into two broad categories:
– Fallen angels: once-solid companies that, following financial difficulties, scandals or an impending bankruptcy, have seen their share price collapse.
– Lottery tickets: small companies (biotech, mining exploration, tech…) with no revenue or stable results, but which sell a “promise” or a supposedly revolutionary project.
So why do these shares still attract interest? The answer’s simple: speculation.
From bucket shops to The Wolf of Wall Street
The history of penny stocks is inseparable from American stockmarket speculation. The term originated in the United States, referring to shares trading below $1 (and, by extension, below $5 under the US market watchdog, the SEC’s modern definition).
At the end of the 19th century, when the official stock exchange was reserved for the wealthy elite, unregulated establishments known as bucket shops let the general public bet on price movements with tiny sums. You did not really own the share; you were betting on its price. It was the spiritual ancestor of speculative trading, whether via derivatives or penny stocks: a maximum accessibility for maximum speculation. Bucket shops were banned after the 1929 crash.
In the 1980s and 1990s, penny stocks gained a notorious popularity thanks to the rise of telephone cold-calling. That era was immortalised by the film The Wolf of Wall Street. Unscrupulous brokers sold shares in shell companies (the famous American pink sheets , named after the colour of the paper on which the quotes were printed) to naïve savers, with get-rich-quick promises.
With the advent of the internet, the telephone gave way to forums, social networks and messaging apps (Telegram, Reddit), but the dynamic remains rooted in this history of speculation on the fringes of regulated mainstream markets.
What exactly is a penny stock?
Why are these shares so specific? It is not just about a low price, but rather about a different market structure.
A company is not born a penny stock – it becomes one. The root of the problem is severe financial distress: the company is burning cash and has no sustainable business model. The slide in the share price generally stems from reliance on expensive and/or dilutive financing mechanisms, because the firm cannot access conventional channels due to an excessively high risk profile. To survive, these companies therefore constantly issue new shares (via convertible bonds, other dilutive instruments or capital increases). This increases the share count and mechanically pushes down the share price, diluting existing shareholders. In most cases, it is a vicious spiral that cannot be stopped. These zombie companies survive only because their operations are propped up by chronic fundraising.
In market trading, this precariousness and underlying insolvency drag prices to the bottom. Sporadically (press releases, manipulation, a sudden sectoral craze…) penny stocks bounce and experience bouts of frenzy. However, these are usually short-lived episodes, unable to counter the inexorable decline.
This volatility is amplified by the low real liquidity of these shares. Or rather, by order-book imbalances, since some companies, after issuing dilutive instruments again and again, end up with hundreds of millions or even billions of shares in issue. They are therefore ideal vehicles for price manipulation (pump and dump), which allows unscrupulous investors to artificially push the price up (pump) to lure in retail buyers, before dumping their holdings en masse (dump), thereby triggering a collapse.
About a hundred penny stocks in France
In France, there are around a hundred companies trading below €1 on Euronext markets at the start of 2026. The lowest has a microscopic share price of €0.0001. They include all kinds of players: fallen angels and lottery tickets, including many firms that have signed dilutive financing agreements with entities that recoup their money in the market by selling the shares received in exchange, creating a persistent flow of selling pressure.
To conclude, here are two key lessons to bear in mind at all times:
– A share is not “cheap” because its price is low. A share at €0.50 can be infinitely more expensive (in terms of company valuation) than a share at €500 if the first company is on the brink of bankruptcy and the second is growing strongly.
– A share worth €0.01 can still fall-and fall sharply: there is no floor to quotations.
Penny stocks are ultra-high-risk investments. Trading enthusiasts may find them appealing, but long-term investors are generally better off steering clear: there are far more blows to be taken than nuggets to be found on the list.
