By Prasenjit Paul
In my 15 years of offering advisory service to equity investors, I have frequently noticed a widespread misconception: many investors believe that low-priced penny stocks are “cheap” and can generate multi-fold returns only because of their low price. This impression is occasionally strengthened after looking at the historical price charts of today’s well-known companies.
For example, a cursory glance of HDFC Bank’s historical stock price chart might indicate that the stock price jumped from Rs 15-20 during the 2001-2002 period to almost Rs 1,000 as of the current date. It can appear to be a simple example of multi-fold return from a low-priced stock, but the truth is very different.
In actuality, HDFC Bank was never traded around Rs 15-20 at that time. Historical price charts adjust all subsequent stock splits and bonus issues. Consider a stock that is currently trading at Rs 1,000. Let’s say in two years, the stock price jumps to Rs 5,000 and then the company announces a 1:1 bonus and lowers the face value from 10 to 1. The price of Rs 5,000 will be adjusted to Rs 250 and the initial price of Rs 1,000 will be displayed as Rs 50 in the historical price chart. This is just an adjustment to keep the chart consistent; it does not imply that the stock was ever traded at Rs 50.
Why Stock Price Alone Misleads Investors
So, don’t draw any conclusions at a cursory glance at the historical price chart of the stocks that generated multi-fold returns. The stock price shouldn’t be a consideration in the stock selection process. Investment decisions should be taken based on the valuation of the stock, not based on the stock price. The absolute value of the stock price has no correlation with the valuation. In fact, penny stocks are often wealth destroyers. If you monitor all the stocks priced below 10 over a period of 1-2 years, you will find the majority of them turned out to be wealth destroyers.
High Price Doesn’t Always Mean Expensive
The stock price in absolute terms carries no significance in the context of future expected returns. Just because a stock price doubled in the last year doesn’t necessarily mean that it can’t repeat it in the next year or just because a stock price corrected by 50 per cent doesn’t necessarily mean that the price must reverse.
Sometimes, a stock at a higher price can be effectively cheaper than when it was in a lower range. For example, Nuvama Wealth was traded around the Rs 5,000 level in June 2024, at that time, the Price to Earnings (P.E.) ratio was hovering around 28-30. A year later, in June 2025, while the stock price was at the Rs 7,000 level, the P.E. ratio moderated to 25 due to earnings expansion. Thus, the stock at Rs 7,000 turned out to be cheaper in valuation than it was when trading around Rs 5,000. Even after 100 per cent stock price appreciation, a stock might turn cheaper if earnings expand more than that and the company projects better future prospects.
It’s time to junk the misconception of considering stock price as a valuation tool to judge whether the stock is cheap or expensive. In fact, stock prices in isolation should never be a consideration for an investment decision. Don’t shy away from investment just by looking at a stock traded at a few thousand rupees.
Stocks like MRF jumped from Rs 75,000 in 2022 to Rs 1,50,000 in 2025 to reward investors with double returns, which once again vindicates that stock price is just a number, nothing else. Valuation and future prospects decide the return potential of a stock, not the current market price.
(The author is an equity analyst at Paul Asset and the fund manager of 129 Wealth Fund. He is also the author of ‘How to Avoid Loss & Earn Consistently in the Stock Market’ and ‘Multibagger Stocks’)
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