Although there are cheap, promising penny stocks, investors should still be careful. Penny stocks can surge in value from time to time. However, these stocks can more often see significant drawdowns as the market re-prices these securities in a less liquid environment. Few buyers or sellers are present to make an efficient market truly.
That said, there are exceptions to the rule, and not all penny stocks are equal. I believe there are a few small-cap companies with low floats and low share prices worth considering. These three stocks fall in the bargain bin of companies trading at less than $5 per share, which I’d consider a penny stock. For those looking to move up the risk spectrum, these promising penny stocks may be worth a look.
Vimeo (VMEO)
In early 2024, Vimeo (NASDAQ:VMEO) announced cutting 11% of its workforce to meet goals and profitability plans. Seeing a decline from 2023, Vimeo remains a speculative penny stock to buy. Recently, the company reported its Q1 2024 earnings, with revenue sitting at $103.6 million, surpassing the consensus estimate by 1.5%.
With no debt and a three-year revenue growth rate exceeding 85% of competitors, Vimeo presents potential. The market sees a moderate buy for VMEO stock, with an upside expected to be generated by this growth over time.
The video streaming market is one that a few very large players dominate. However, Vimeo could have a shot at taking some share of a very large pie over time. If that’s the case and the company’s growth rate continues, this is a stock to watch closely.
Sirius XM Holdings (SIRI)
Surging at $7.81 per share, Sirius XM (NASDAQ:SIRI) analysts tend to be skeptical of it. This follows a 50% gain over four weeks. Investors are particularly interested due to Liberty Media’s involvement. Liberty Media recently separated Atlanta Braves Holdings into a standalone public company. Liberty Sirius XM shares will split in June, creating a new share class.
The company is expected to report $0.08 per share and a $2.6 billion revenue. Despite these positive expectations, the company’s EPS estimates trended lower over the past month.
Sirius remains profitable, with 34 million subscribers still paying their monthly subscription (despite a recent price dip). Trefis.com estimates a 150% upside with this stock, potentially reaching $7.09 from $2.83. Analyst Jeffrey Wlodarczak set a $4.90 target following a 0.8% revenue increase and a 14% net income rise in Q1. These targets would be reasonable if the market could turn a corner on this name.
Applied Digital (APLD)
Applied Digital (NASDAQ:APLD), a small-cap stock, operates in the competitive data center market, positioning itself as a potential buyout target. It builds and manages data centers across North America, serving blockchain, AI and cloud computing needs. Despite its $450 million market cap and reduced losses, its ongoing unprofitability and high initial costs make it an attractive acquisition for larger companies.
The market is mostly bullish on APLD stock, with analysts holding an average price target of $10.50. This suggests a 217.22% upside and a $385 million revenue. Adjusted EBITDA also sits between $195 to $205 million. In recent APLD news, the company secured private financing with an unnamed investor.
The company recently issued a $42.1 million unsecured convertible debenture, with a 5% discount and no interest, maturing in 54 weeks. The conversion price is the lower of $8.00 or 95% of the lowest average price over five days before conversion, with a monthly conversion cap of $16 million.
For those who think this company can survive, there’s a case that Applied Digital could thrive. In such a scenario, the upside potential may outweigh the downside risk in this name.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Chris MacDonald did not hold (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.
