In India we have seen penny stocks become multi baggers over a period of time. SAIL, Bongaigaon Refineries, Crompton Greaves, and KPIT Information Systems are all cases. The difference between a good prospect and a junk penny stock is the quality of management, supported by a good business model and fairly sustainable cash flows. Avoid penny stocks that are deep in debt since such penny stocks are most vulnerable to business shocks.

India also has its fair share of high priced stocks which gradually dissipated into becoming worthless stocks as bad management decisions, too much debt and lack of reliable profit models took its toll. At the peak of the technology boom, stocks like Pentamedia, DSQ Software, Himachal Futuristic and Silverline ended up being mere shell companies. Post 2010, companies like Kingfisher and Deccan Chronicle were classic cases of the perils of over-leverage. Be careful of this breed of stocks.