Pip-Squeak Pop

What Is a Pip-Squeak Pop?

A pip-squeak pop is a big increase in the price of a stock from a very low valuation. This slang term is associated with penny stocks, which typically trade for $5 or less per share.

In most instances, a pip-squeak pop looks more significant than it is. A $2 stock that increases by an impressive 50% per share is still a $3 stock. That's a hefty profit only for an investor who has a huge stake in the company.

The term "pip-squeak pop" also may be used by forex traders to describe a small price change in a favorable direction by a currency. The currency price has moved by a few "pips," or ticks.

Understanding the Pip-Squeak Pop

Traders of penny stocks often use the term "pip-squeak pop" to describe a stock that climbs by 25% to 50% in a short period of time. That would, in most cases, be considered a substantial increase. Penny traders generally are seeking greater returns.

Penny stocks represent a small but alluring segment of the stock market. Investors with little cash to invest can purchase a significant number of shares in hopes of earning a substantial return from a move in the stock price.

For example, the stock of a biotech startup with a single promising product or a gold-mining exploration company may trade at $0.50 per share. An investor could purchase 1,000 shares for $500. A single positive headline could create a pip-squeak pop. The stock could rise to $1 and the investor would cash in, doubling the amount invested.

Advantages and Disadvantages of the Pip-Squeak Pop

The pip-squeak pop is a rare event. In fact, it may be as rare as a big payout from a slot machine.

Penny stocks are cheap for a reason. Some are companies that have hit the skids financially and gotten delisted from the major exchanges. Some have very poor financial prospects or none at all.

All of them carry a high degree of risk due to their light regulation and low listing standards. Most penny stocks trade over-the-counter (OTC) rather than on a regulated stock exchange or electronic communications network.

The exchanges require that stocks maintain a minimum level of daily trading volume and file regular financial statements with securities regulators. Parts of the OTC market, such as the pink sheets, have no such rules.

Penny stocks have less liquidity than larger stocks, which causes them to have wide bid-ask spreads between the price a buyer is willing to bid and the price a seller is willing to accept. In other words, a penny stock seller may find it difficult or impossible to find a buyer.

Penny stocks are not followed by most research analysts due to their small size and high risk. That may work to the advantage of a buyer who has the skills and knowledge to uncover the occasional mispriced stock that is poised for a pip-squeak pop.

Much more frequently, a penny stock pops in the wrong direction and stops only when it hits zero.