Seasoned investors know that some of the greatest stocks of today started out small, as penny stocks under $5. For example, in July 2015, Advanced Micro Devices (NASDAQ:AMD) was below $2. Now it is well over $50. Proactive management and the right growth strategies have meant stellar returns for AMD shareholders.

Yet not all penny stocks go on to make higher highs in a matter of few years. Some trade sideways for a long time and some even go bust. Therefore, anyone considering investing in penny stocks would need to appreciate the risk/return profile that may be offered by such a company.

According to the U.S. Securities and Exchange Commission (SEC), a penny stock “generally refers to a security issued by a very small company that