In the world of penny stocks, DD is widely misunderstood to be all of the great things that are claimed to be happening or supposedly will be happening. Usually these "great things" are unverified and typically are never able to be verified or ever come to fruition (regardless of the stock). This kind of information is hype, not DD.
In reality, DD is an important verification and risk assessment function which is legally required in certain circumstances. DD seeks to verify all material claims made by the company including its financial statements, press releases, etc., considers the financial stability of the company and ability to achieve its business plan, vets the officers and directors, reviews the past and present performance of the company, etc., in order to make informed decisions about an investment initially and whether to continue to hold after buying in.
DD regarding a stock investment needs to be continuously performed over time, particularly a penny stock. It can be difficult to do DD on a company with a limited history. However, as time passes, the ability to perform verification and risk assessment DD improves. Often (probably usually), penny stock investments don't live up to their initial hype. Over time when the "great things" fail to materialize and the company has to dilute to stay in business, the stock price declines and often becomes illiquid as new investors are able to assess the past history of failed expectations.
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