Many bargain-priced mid-cap and micro-cap penny stocks are trading at highly-discounted levels right now. With the recent cooler-than-expected PCE inflation read, markets are now pricing in just a 2.5% chance of another Fed rate hike. These numbers include a 60% chance of a cut as early as March. Accordingly, I believe now is an opportune time to snap up some of these massively undervalued stocks before they potentially skyrocket over the next five years.
Unless economic growth substantially declines from here on out (which seems unlikely given resilient consumer spending), the stock market could get a shot in the arm when rates fall or even if they just stay put. This would provide strong tailwinds to smaller companies in the early stages of their growth cycles, which rely more heavily on market funding. Buying into such stocks now can allow investors to benefit not only from the higher long-term upside as their businesses expand, but also from their currently depressed valuations. Much of the recent bearishness has already been priced into these stocks, meaning their downside risk is limited. Let’s dive in!
Eventbrite (EB)
Eventbrite (NYSE:EB) has been trading at depressed levels for a long time now. In fact, the stock is now trading at a discount of more than 80% from its pandemic peak. However, from my perspective, the stock seems to be bottoming out as financials start to notably improve.
Losses have been shaved down substantially, from $225 million in 2020 to $55 million in 2022, and the company is expected to turn profitable this year with expected earnings per share of 28 cents. This puts the company’s forward price-to-earnings ratio at just 27-times currently. Looking ahead to 2025, Eventbrite’s EPS numbers are anticipated to reach 65 cents. With that in mind, the stock’s forward price-earnings multiple would drop to only 11.5-times by then. I’m of the opinion that this rapid expected earnings growth warrants a far higher premium.
Additionally, it’s not solely earnings that are growing impressively. The company’s top line has also expanded remarkably. Analysts expect revenue to surpass pre-pandemic levels this year, with further revenue growth expected afterward. Projections show 2028 revenue potentially hitting $685 million, which is not far from EB’s current market valuation. Cash flow has also already turned positive, a big positive for investors. In fact, the company generated $50.4 million in free cash flow generation in its latest quarter.
All these catalysts considered, I believe EB stock has substantial room to run over the long-term.
Playstudios (MYPS)
Playstudios (NASDAQ:MYPS) is a mobile gaming company utilizing a freemium model to produce profits and revenue. However, the sharp decline in advertising revenue in 2022 heavily hindered this company’s growth, resulting in the stock plunging significantly since mid-2021. Recently, MYPS stock has trended down to just $2.50 a share from almost $5 back in July. In my view, that’s an overreaction by Wall Street. The company’s advertising revenue is recovering in 2023, and Playstudio now appears to have made it through the worst of this market.
After incurring $17.8 million in losses last year, Playstudios delivered $3.8 million in net income in Q3 of this year. This places the company on profitable footing (at least on a net basis) for the first nine months of 2023. I believe the company can continue expanding these profits over the long term, making its valuation even more attractive over time.
Of course, I would note that this is no rapidly-growing tech stock. The company’s revenue growth is expected to remain muted in the mid-single-digits. And its earnings accretion will likely take a few years to fully materialize. Still, if you are willing to hold until 2028, I foresee luscious returns as the company improves its margins.
Bitfarms (BITF)
Bitfarms (NASDAQ:BITF) is a blockchain tech stock involved in the mining of Bitcoin (BTC-USD). Bitcoin has recently crossed $40,000 per coin, possibly signaling the start of something much bigger ahead. We have potential catalysts like the upcoming halving event and anticipated Fed rate cuts that could provide tailwinds. Additionally, Bitcoin ETFs have a strong likelihood of being approved soon, and general sentiment surrounding Bitcoin seems very positive currently. With that in mind, I believe investing in Bitcoin mining stocks is a savvy idea right now.
Many crypto miners have been accumulating Bitcoin (at very high margins) and have retained these coins, expecting further crypto price appreciation. Now that we are seeing this scenario play out, Bitfarms finds itself well-positioned to reap massive profits. By 2028, we will have yet another halving event and, hopefully, a very constructive macroeconomic backdrop. Both developments should help unlock multibagger gains over the long-run.
However, as is the case with the other stocks on this list, Bitfarms is a company betting on a speculative asset, so predicting its revenue or earnings is challenging since it all hinges on where Bitcoin heads next.
Penny Stocks
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Read More: Penny Stocks — How to Profit Without Getting Scammed
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.
