In times of market turmoil, penny stocks often get overlooked by investors seeking refuge in more stable blue chip stocks. However, for the enterprising investor, penny stocks can offer intriguing avenues to potentially turn a small investment into a much larger sum.
Though risky and speculative, certain penny stocks with strong fundamentals present an opportunity for exponential returns. Recent sector rotations, macroeconomic trends, and company-specific catalysts have put the wind behind the sails of select microcaps. With prices depressed to near all-time lows, now could be the time to pick up shares on the cheap before the next upswing. Given their inherent clinical binary risks, this article will not cover biotech stocks. Instead, the focus is on penny stocks with established businesses in growing fields.
Of course, given their fragility and volatility, penny stocks carry substantial risk. The current bear market, coupled with near-term recessionary fears, provides strong headwinds. Patience and fortitude will be required before gains can realistically materialize. Some penny stock picks may never reach their potential or even go bust. Investors should size positions accordingly and not bet the farm on penny stocks.
Yet, the long-term outlook for many penny stocks is filled with possibilities. With the right catalysts and proper management and execution, these tailwinds could align just right to send such penny stocks soaring. The companies highlighted here have both deep value and growth vectors that could converge and provide multiplied returns on a small starting investment. Let’s dive in!
Terran Orbital (LLAP)
Terran Orbital (NYSE:LLAP) has seen its stock beaten down significantly in 2023, dropping more than 67% over the past year. However, there are many reasons to believe this innovative space stock has massive upside potential over the long run.
In my view, Terran Orbital is poised to be a space industry leader given its enormous $2.6 billion backlog, which includes a $2.4 billion contract from Rivada Space Networks. With only a $166 million market capitalization currently, LLAP trades at a fraction of its booked business. Furthermore, Terran Orbital is guiding for over $250 million in revenue for 2023, implying a price-sales ratio of around just 0.6-times.
Of course, bears may argue that the company’s profit margin will remain low, given the capital intensity of the space sector. However, by comparison, space titans like SpaceX and Virgin Galactic (NYSE:SPCE) also operate on negative margins, given the high R&D costs associated with entering this sector. These companies are worth tens of billions of dollars.
Additionally, Terran is aggressively expanding its manufacturing capacity, opening new 50,000 and 94,000-square-foot facilities. This increased capacity will support fulfilling Terran Orbital’s massive contracted backlog. In my view, as the company’s revenue scales over the coming years, Terran’s enterprise value should expand considerably from today’s levels.
Wall Street analysts see the one-year upside potential with LLAP stock at 464%. If industry valuations are applied here, it can easily turn your single into a hundred bucks. Obviously, this equation isn’t that simple, since you need to take dilution and more short-term pain into account. But I personally think Terran is well on its way to multiplying its shareholders’ money over a multi-year timeline.
Ammo Inc (POWW)
With conflicts raging globally, ammunition manufacturers like Ammo Inc. (NASDAQ:POWW) stand to see surging demand. In my perspective, Ammo Inc. is well-positioned to capitalize on these tailwinds and significantly expand its operations.
Ammo already had a backlog of over $180 million entering 2021. We don’t have updated figures nowadays for obvious national security reasons. However, demand likely accelerated, with this figure pushed into the billions due to recent geopolitical turmoil. Governments worldwide are confronting depleted ammunition stockpiles after drawn-out conflicts. Rebuilding inventories could take years or even decades, per some estimates.
Of course, some may argue that easing conflicts could derail demand. However, in my view, global military restocking will continue regardless, given the clear need for larger strategic reserves. With Ammo’s Lake City plant running at full capacity, the company is poised to ride this demand surge to new highs.
Additionally, powder shortages have constrained ammo production industry-wide. Yet, Ammo is partially insulated, given its in-house powder production capabilities. This vertical integration provides a competitive advantage, allowing the company to capture market share during periods of shortages.
With over $47.5 million in cash and only $24 million of debt, Ammo also has a solid balance sheet to support expansion. Furthermore, the stock’s valuation remains reasonable at 2-times forward sales. Indeed, I believe POWW stock has substantial upside potential, as the ammunition supercycle unfolds over the coming years.
PaySign (PAYS)
In the fintech space, PaySign (NASDAQ:PAYS) has seen its stock languish after its pandemic growth spurt ended. However, with healthcare rebounding, PaySign presents an intriguing opportunity, trading at just 27-times 2024 earnings.
In my opinion, PaySign’s unique mix of prepaid card solutions for pharma copays and plasma donation compensation provides a relatively stable base business. The company generates strong recurring revenue and cash flows from long-term client relationships. This generates a solid platform for PaySign’s newer offerings.
As management detailed, PaySign’s newer patient affordability segment is rapidly gaining traction. Revenues have more than doubled in this segment, as the company disrupts incumbent vendors. PaySign’s customized white-glove service approach seems to be winning over large pharma customers.
Additionally, the total addressable market of the patient affordability segment dwarfs PaySign’s legacy plasma card business. This massively underserved market represents the company’s largest growth avenue, in my view. Consequently, PaySign’s 28% revenue growth could accelerate further as this segment scales.
Naturally, PaySign’s small size (an enterprise value of only $90 million) means there is risk. However, the company is already generating positive EBITDA and free cash flows, which reduces my fundamental concerns considerably. I believe PAYS stock offers substantial upside potential as the company penetrates the enormous patient affordability space. The stock’s current valuation leaves ample room for multiple expansions once the market recognizes PaySign’s growth trajectory. Currently, the average Wall Street analyst sees one-year upside potential of 147% for PAYS stock.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
