Penny stocks may not be best way to invest in energy sector

— -- Q: Are energy penny stocks a better value than the shares of big oil companies such as Chevron and ExxonMobil?

A: It's easy to just look at the per-share price of a stock and think it tells you what stocks are the cheapest.

Investing doesn't work that way. It doesn't work that way with any stock, and that includes energy stocks.

Investors need to do more due diligence than simply looking at the share price of a stock to know if it's a good or bad value.

First, investors should compare the per-share price of a stock against the amount of earnings the company has generated per share. By dividing the stock price by the so-called earnings per share, you can see how much investors are paying for a claim of the company's earnings. You will likely find that many of the energy stocks that are trading for just pennies a share don't generate much in earnings either, so you're not really getting much.

Secondly, you need to evaluate the consistency of the company's results, which is especially important in the energy business. While a small company might hit a lucrative energy reserve, and enjoy the profits temporarily, there's no guarantee lightning will strike again. As an investor, you don't want to pay up on the speculation an energy company might luck out again.

Energy is certainly an important part of the economy and it's one of the largest weightings in the Standard & Poor's 500 as a result.

But generally, you're going to be much better off focusing on shares of the larger, more established energy stocks. These companies are much more diversified geographically and businesswise, protecting you somewhat from the risk of a slowdown. And it's not just with energy stocks.

Don't be put off by the higher per-share prices of more established energy companies. Thanks to falling online brokerage commissions, you can just as easily buy one share of a big energy company as 1,000 shares of a penny stock in the energy sector. The Securities and Exchange Commission has issued several warnings to investors about the perils of penny stock investing.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz