Penny stocks have the allure of huge returns. Hey, if the shares are trading at, say, 50 cents, it doesn’t take much to get to $1 or $2, right?
Well, not necessarily so. For the most part, it is usually challenging to make money in this corner of the market. First of all, a company will have a difficult time getting much coverage from Wall Street analysts and institutions.
Next, penny stocks usually have major problems with their businesses. In some cases, there may even be the likelihood of bankruptcy, which can wipe out the equity. And even if a company has enough financial resources to stay afloat, there could still be the issue of the market opportunity. It may be more of a niche, which limits the upside.
But, even with all these problems, there are still opportunities to make money with penny stocks.
So then, which ones look interesting right now? Here’s a look at seven:
- Boxlight (NASDAQ:BOXL)
- Verb Technology (NASDAQ:VERB)
- Hexo (NYSE:HEXO)
- Synacor (NASDAQ:SYNC)
- Support.com (NASDAQ:SPRT)
- Castlight Health (NYSE:CSLT)
- Cinedigm (NASDAQ:CIDM)
Penny Stocks: Boxlight (BOXL)
Boxlight is a developer of technology solutions for interactive learning. Some of its products include panels, projectors and peripherals. But there is also a set of offerings for the fast-growing STEM (Science, Technology, Engineering and Math) category, such as for robots, coding systems, 3D printing and portable science labs.
The company does have a large distribution footprint. Boxlight products are sold across 60 countries and are in over one million classrooms. There is also a strong reseller ecosystem of more than 500 partners.
The Covid-19 pandemic has certainly put pressure on the business. But Boxlight has been able to effectively navigate through this. For example, management was able to obtain an investment of $22 million from The Lind Partners and pull off a $34.5 million secondary offering.
Another positive for BOXL stock is that the company recently struck a strategic acquisition for Sahara Presentation Systems. The company, which also develops interactive classroom products, has a strong presence in the EMEA (Europe, Middle-East and Africa) regions and should provide a new source of growth.
Verb Technology (VERB)
Verb Technology operates a Cloud platform that helps customers leverage video, such as with sales enablement. Some of the applications are for webinars, onboardings and ecommerce.
The software is sold in more than 60 countries and is available in 48 languages. The customers range from small businesses to large enterprises.
With the Covid-19 pandemic, the corporate world has been scrambling to better use video. True, this has not necessarily helped VERB stock. But the company is still in the early stages. And there is certainly lots of growth potential.
Just look at the latest earnings report. The SaaS (Software-as-a-Service) revenues jumped by 55% on a year-over-year basis and 16% sequentially. In fact, Verb has been able to post six consecutive quarters of growth on the top line.
To help keep up the momentum, the company has been investing in integrations. One such integration is with Salesforce.com (NYSE:CRM), which includes a joint marketing campaign, and another one will launch soon with Microsoft’s (NASDAQ:MSFT) Outlook.
HEXO is a manufacturer of packaged cannabis goods. The company is one of the largest licensed operators in the Canadian market and has about two million square feet of space in Ontario and Quebec.
HEXO stock has rallied during the past month. And the main reason is President-elect Joe Biden’s win in the U.S. election. Wall Street believes that he will be more favorable to the cannabis industry.
But it’s important to keep in mind that HEXO stock is still well off its 52-week high of $2.24. The shares are now trading at penny-stock levels of $1.
Now, while the U.S. market holds potential for HEXO, the immediate focus is on the Canadian segment. The good news is that the supply-and-demand situation is starting to improve.
In the latest quarter, HEXO reported a 76% year-over-year spike in revenues to $27.1 million. There was also a 21% sequential improvement for adjusted EBITDA.
One key for the company has been the focus on creating compelling beverages. Then again, HEXO has the benefit of a top-notch partner in this effort, Molson Coors (NYSE:TAP).
Synacor is an enterprise software Cloud company that provides email, collaboration, identity management and managed services. Its customers are primarily in industries like communications, media and government.
The Covid-19 pandemic did negatively impact the business. But it appears that Synacor is in a much better position now. Keep in mind that the company has reinstated its financial guidance. For the fourth quarter, it expects to post double-digit enterprise Cloud growth and positive cash flow.
The gem appears to be the company’s Cloud ID system. It’s similar to what Okta’s (NASDAQ:OKTA) Identity Cloud is offering, which has seen tremendous growth. However, OKTA also has a market capitalization of $33 billion. As for SYNC, it is a mere $59 million.
Founded more than 20 years ago, Support.com is a provider of outsourced call center and technical support solutions. The company’s platform includes a variety of technology capabilities to streamline the process as well.
The market is certainly large, especially for providing technical support for devices. Just some of the areas for help include installation, maintenance, troubleshooting, inter-operability and learning new features. Consumers also have come to expect support on a 24/7 basis, whether via phone, desktop or mobile.
The market is also competitive, though. And yes, SPRT has been a long-term penny stock.
Yet the company has been making major changes, which could help turn things around. A big part of the strategy is to move from consumer-focused to enterprise-focused services. The margins are much higher for this model, and there is a growing need for higher-end capabilities.
The valuation on SPRT is definitely attractive. The market cap is just shy of $40 million, but there is also $29.7 million in the bank.
Castlight Health (CSLT)
In 2016, Castlight Health pulled off a high-profile initial public offering (IPO). On the debut, the shares soared by 149%. But unfortunately, this would be the high point. CSLT stock has since been trending down — and is now among the penny stocks, with its price at $1.27. Yet investors should not necessarily throw in the towel on this one.
Castlight Health operates a platform that connects health vendors, benefits resources and plan designs. The technology provides a personalized experience for users.
To help boost growth, Castlight Health has been investing aggressively in virtual care. A key piece of this strategy has been the formation of a partnership with Amwell (NYSE:AMWL), which has a leading telehealth solution.
Next, the company has focused on its service for behavioral health. This is an underserved — but critical — area of health.
And finally, the company has been able to increase its customer satisfaction levels. This is no easy feat when it comes to healthcare benefits. Since January, the NPS (Net Promoter Score) — which measures if a customer will recommend a product — has jumped an impressive 25 points.
As for CSLT stock, it is cheap. Note that the price-to-sales ratio is 1.32. The balance sheet is also solid. The cash balance is $44 million and the debt load is $19 million.
Cinedigm packages feature films and series for digital platforms such as Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and Comcast (NASDAQ: CMCSA). Over the years, the company has also built its own technology for content and delivery.
While the market is red hot, CIDM stock has not been. The price is only at 87 cents, and the market cap is just under $117 million.
But despite this, CIDM could still be an interesting speculation. One reason is the company’s majority owner, Bison Capital. The firm is based in Hong Kong and has extensive experience in the entertainment industry. Consider that there are plans to tap into the fast-growing Chinese market.
Next, Cinedigm has been reporting strong momentum in usage. Last year, the platform had over 4.5 million monthly users. Now the number is over 15.2 million, making this one of the most promising of the penny stocks on this list.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article except ownership of Cinedigm.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.