The Best ASX Penny Stocks
to Invest In May 2025

Check out our industry experts’ report and analysis
on the best Australian penny stocks to invest in right now!

The Best ASX Penny Stocks to Invest In May 2025

Check out our industry experts’ report and analysis on the best Australian penny stocks to invest in right now!

What Are Penny Stocks?

Penny stocks are typically low-priced shares of smaller companies, often trading for under $5 per share. These stocks are linked to smaller market capitalisation (market cap) companies and typically have lower liquidity, which means there are fewer buyers and sellers in the market. Despite their low price, penny stocks often present opportunities for significant price movements, which can yield high returns in a short period.

Unlike larger companies, often referred to as blue-chip stocks, penny stocks tend to be more volatile and are considered highly speculative. This volatility is due to several factors, including market sentiment, the company’s stage of development, and its financial situation. Many penny stocks are issued by young companies or those in financial difficulty, but some have potential for substantial growth, particularly if they are involved in high-demand sectors such as mining or technology.

ASX penny stocks offer retail investors an affordable entry point to the market, making them an attractive investment choice for those with a high-risk tolerance. However, this high-risk investment class is not suitable for everyone, as the price of these stocks can fluctuate significantly based on news releases, company performance, and broader market trends.

Top 6 Reasons Why You Should Invest in ASX Penny Stocks

Investing in penny stocks comes with its risks, but for the right investor, there are clear benefits. Here are the top six reasons why you should consider ASX penny stocks for your investment portfolio in 2025:

High Growth Potential

Many of the top penny stocks on the ASX are from young companies in emerging sectors. These stocks often experience rapid share price growth when their products or services gain traction in the market. Companies involved in high-growth sectors, such as mining projects or renewable energy, can see significant appreciation in their share price, making them an appealing choice for investors seeking substantial returns.

Affordable Entry Point

One of the most attractive aspects of penny stocks is their low stock price, which offers an affordable entry point for retail investors. Investors can purchase larger volumes of shares for the same amount of capital compared to buying stocks in more established companies or blue-chip stocks. This allows investors to diversify their portfolios and invest in several small-cap stocks without risking large sums.

Emerging Sectors with Fast Growth

Many penny stocks are involved in emerging sectors such as mining, biotechnology, and technology start-ups. For example, companies in the mining industry in Western Australia, such as those involved in gold projects or lithium extraction, may see rapid growth due to the increasing demand for minerals in industries like electric vehicles and renewable energy. Early investors in such sectors may benefit from the significant growth rates of these small-cap stocks.

Diversification

Active Trading Opportunities

Potential for Acquisition

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What to Look for When Buying Micro-cap Shares

When buying micro-cap stocks, which are often referred to as penny shares due to their low price per share, it's important to perform your research to sift through high-risk investments and identify potential gems.

Look for micro-cap stocks with a solid balance sheet and promising revenue growth. This is a good indicator that the company is managing its resources well, even if it's one of the smaller companies. Financial stability in young companies can be a green flag, showing their potential to graduate from being most penny stocks to more established stocks.

Investigate whether these penny shares are in a unique position within their market. Young companies often innovate or enter underserved niches. For instance, Castle Minerals Limited, operating in Western Australia, focuses on development projects in mining, which could set it apart from more established companies in similar sectors.

Many micro-cap stocks are also thinly traded, meaning they have relatively few sellers and buyers. This can lead to volatility, which could be risky if you need to sell shares quickly. Adequate liquidity is essential to ensure that you can enter and exit positions without causing significant price movements.

ASX small-cap stocks, like all ASX stocks, must adhere to specific regulatory requirements. Check their filings for any red flags or inconsistencies. Transparency is important and a lack of it is a significant concern as ASX penny stocks tend to be less transparent than larger companies.

3 Best Penny Stocks ASX to Buy Now in 2025

The Calmer Co International Ltd (ASX: CCO)

The Calmer Co International Ltd (ASX: CCO) is a company focused on wellness and sustainability, offering products such as nutraceuticals and eco-friendly goods. With consumer demand for health-conscious and environmentally friendly products on the rise, CCO is capitalising on this growing market..

Legacy Iron Ore Ltd (ASX: LCY)

Legacy Iron Ore Ltd (ASX: LCY) is an exploration company focused on iron ore, particularly its Mount Bevan project in Western Australia. This region is well-known for its abundant iron ore resources, and LCY is working to develop its mining operations in the area. Iron ore remains a critical commodity..

Australian Vanadium Ltd (ASX: AVL)

Australian Vanadium Ltd (ASX: AVL) is focused on the exploration and development of vanadium, a critical material used in the production of high-performance batteries for large-scale energy storage. As the global shift towards renewable energy accelerates, demand for vanadium is expected to surge..

3 Best Penny Stocks ASX to Buy Now in 2025

The Calmer Co International Ltd (ASX: CCO)

Despite being in its early stages, CCO’s focus on wellness and sustainability makes it a promising penny stock. However, given its market volatility and smaller size, potential investors should be cautious of the inherent risks in this early-stage company. In the long term, CCO could benefit from increasing consumer interest in wellness, but it must continue to scale its operations effectively to achieve sustainable growth.

Legacy Iron Ore Ltd (ASX: LCY)

For LCY, this provides an exciting growth opportunity, as the company is poised to tap into this demand with its substantial reserves. However, the company faces several operational and financial challenges, including securing funding for its projects and managing fluctuating commodity prices. If LCY can manage these risks effectively, it could see significant growth in the coming years. Investors should keep an eye on the company’s progress, particularly as iron ore production increases and global demand rises.

Australian Vanadium Ltd (ASX: AVL)

AVL’s key asset, the Australian Vanadium Project, is one of the largest known vanadium deposits, positioning the company to play a significant role in meeting this demand. As the company refines its extraction processes and prepares for large-scale production, AVL is in a strong position to capitalise on the growing demand for energy storage solutions. However, the company must continue to scale its operations and manage the complexities of resource extraction. If successful, AVL could be a leading player in the renewable energy sector, making it an attractive penny stock in 2025.

How to Trade and Invest in Penny Stocks

Trading and investing in penny stocks can be both exhilarating and risky, making it a perfect fit for those who classify themselves as highly speculative investment enthusiasts.

So to start, develop a bullish outlook based on research and trends. Many successful penny stock traders focus on sectors with upcoming positive shifts due to new regulations, technology changes, or economic factors that favour smaller companies over larger companies.

Given that penny stocks are highly speculative investments, using limit orders can protect you from buying at a higher price or selling at a lower price than expected.

While penny shares can offer substantial gains, they are at higher risk. Balancing your portfolio with international stocks, established stocks, and other stocks on the ASX can protect you from the volatility associated with most penny stocks.

The sentiment and movements in major markets can often influence investor behaviour worldwide, even among ASX small-cap stocks.

Finally, continually reassess your investments in penny stocks. The market conditions and company fundamentals can change rapidly, making it crucial to stay informed and react accordingly. Always conduct your research periodically, even after buying shares, to ensure your investment reasons still hold.

The Risk of Investing in Penny Stocks

Penny stocks offer tremendous upside potential, but they also come with considerable risk. Here’s a deeper look into some of the risks associated with ASX penny stocks:

Liquidity Risks

Penny stocks generally have low trading volumes, meaning there are relatively few sellers. If you want to sell a large quantity of shares quickly, you might struggle to find buyers. Penny stocks often have low liquidity, which can lead to significant price fluctuations based on relatively small buy or sell orders. This can make stock trading in penny stocks more difficult and riskier than trading with larger companies.

Volatility

As a high-risk investment, ASX penny stocks are often subject to dramatic swings in price. The share price of penny stocks tends to be more susceptible to market sentiment and news, making them volatile investments. In some cases, penny stocks can experience sharp increases in price due to market speculation or favourable announcements, but they can also experience steep declines if the company faces challenges or unfavourable news.

Market Manipulation

Due to their low liquidity, penny stocks are more vulnerable to market manipulation. "Pump and dump" schemes are common in the world of penny stocks, where an individual or group inflates the stock price artificially, often through misleading information, before selling off their holdings. This type of market manipulation can result in significant losses for investors who are left holding the stock once the price crashes.

Limited Information

Many ASX penny stocks come from companies with limited financial transparency or insufficient coverage by analysts. This can make it difficult for investors to assess the company’s fundamentals and long-term growth potential. Unlike blue-chip stocks, which are heavily scrutinised and have consistent revenue growth, penny stocks can lack clear financial reports and official disclosures. This increases the risk of investing in companies that may face financial difficulties or fail to meet their growth targets.

Risk of Loss

While penny stocks offer significant growth potential, the risk of total loss is higher than with more established companies. The company’s business model might fail, the stock might not meet market expectations, or the company may not be able to generate enough revenue to survive. As most penny stocks are small companies, they may be more prone to financial difficulties, which increases the risk of total loss for investors.

Are ASX Penny Shares a Good Investment?

So, are ASX penny shares a good investment? If you're someone who enjoys research, has a knack for spotting trends, and can afford to take on high-risk investments, penny shares might be an exciting addition to your portfolio. However, they should likely not represent the entirety of your investment strategy due to their risky nature.

For conservative investors focused on steady growth and preserving capital, these stocks might not be suitable due to their unpredictable nature and potential for significant losses. It’s often recommended to approach penny shares as just one part of a diversified investment strategy, rather than a standalone plan.

FAQs on Investing in Penny Stocks

How penny stocks perform in a bear market

Penny stocks typically exhibit high volatility and increased risk during bear markets, often underperforming due to their low market capitalizations and liquidity constraints.

Should you invest in penny stocks in 2024?

What are the best ASX penny stocks to buy?

Are penny stocks high risk investments?

How do I buy penny stocks?

How can I mitigate the risks of investing in penny stocks?

What is a small-cap stock?