The biggest problem with penny stocks is that they are easily manipulated, and they frequently are. Many of the companies trading as penny stocks have poor track histories of accurate financials, and what information that is available is not very reliable or verifiable.
I recall a few years ago when there were articles out there in financial circles talking about how more than a few penny stocks were being manipulated by organized crime syndicates.
Another big issue with penny stocks is liquidity. Since they're so thinly traded (not a great deal of daily volume), anyone who puts enough money into a penny stock to make it worth the effort almost certainly becomes the biggest trader in the stock, which can make it tough to liquidate positions. There are not enough market makers in the stock to be competitive, so you have to accept the bid/ask prices of whoever is willing to execute the trades, so the margins evaporate quickly.
Penny stocks are something you can trade if you're bored, have money to burn, and just want to toy around with something just for the heck of it that you'll ultimately lose out on.