The traditional definition of penny stocks is those companies whose shares trade for $5 or less. It’s never easy finding cheap penny stocks to buy amongst this oppressed group because they are often selling at a low share price for a reason.
If it were easy to make money from low-priced stocks, you would see more institutional money getting in on the action. The only fund I know of is the Fidelity Low-Priced Stock Fund (MUTF:FLPSX). It’s been around for years.
Launched in 1989 by star portfolio manager Joel Tillinghast, it focuses on identifying high-quality companies undervalued by the markets. However, there is nothing low-priced about it. Its top 10 holdings include UnitedHealth Group (NYSE:UNH) and Monster Beverage (NASDAQ:MNST). These are hardly penny stocks.
The intelligent retail investor will look at Tillinghast’s holdings for inspirational investing ideas. The speculative retail investor is willing to scrape the bottom of the barrel to find a few gems that are too cheap to ignore.
With that in mind, I’ve selected 3 penny stocks trading below $5 as I write this that have decent balance sheets, are growing revenues, and are currently making money or close to doing so.
| ARLO | Arlo Technologies | $4.85 |
| OSUR | OraSure Technologies | $4.01 |
| WETF | WisdomTree Investments | $4.95 |
Arlo Technologies (ARLO)
Arlo Technologies (NYSE:ARLO) hasn’t always been a penny stock. In August 2018, ARLO traded above $22. Year-to-date, it is down almost 54%.
Arlo makes wireless security cameras. It hit $22 in August 2018 after being spun off that month from NetGear (NASDAQ:NTGR). Arlo sold 10.2 million shares at $16. It promptly jumped 40% from its initial public offering price.
By the time NetGear completed the spinoff of its remaining 84.2% ownership stake, ARLO stock was down below $10. It got as low as $$1.67 in the March 2020 correction. It’s been in and out of penny stock hell ever since.
In the second quarter ended July 3, 2022, Arlo generated 20.7% revenue growth year-over-year to $118.98 million, a non-GAAP gross margin of 29.5%, 190 basis points higher than Q2 2021, and a non-GAAP net income of $0.01, five cents higher than a year earlier.
Its annual recurring revenue in the quarter was $116.6 million, 29.4% higher than a year ago. Its EMEA (Europe, Middle East, and Africa) revenues jumped significantly during the quarter. They now account for 46% of Arlo’s overall revenue.
ARLO stock currently trades at 0.85x sales, cheaper than it’s been since going public in 2018. Thus, it is among the top cheap penny stocks.
OraSure Technologies (OSUR)
OraSure Technologies (NASDAQ:OSUR) is a healthcare diagnostic, sampling, and data analytics company. Its stock is down nearly 54% YTD and 82% over the past five years.
In September, OraSure said it was partnering with Mars Petcare to conduct one of the largest-ever microbiome studies to evaluate pet health. The project should help scientists better understand how to improve pet health.
The company reported record Q2 2022 revenue of $80.2 million, 39% higher than a year earlier. It reports its revenue in two segments: Diagnostics (75%) and Molecular Solutions (24%). Research and development funding accounted for the remaining 1%.
A big part of its revenue growth in the second quarter comes from its InteliSwab Covid-19 rapid tests. In Q2 2021, these revenues accounted for $89,000. A year later, it generated $43.1 million from InteliSwab.
You probably think that Covid-19’s behind us, so the company’s revenues will fall off a cliff in fiscal 2023. However, in its Q2 2022 press release, the company said it can produce 1.6 million tests per week, doubling this amount early in 2023.
At the same time, margins are moving higher. As a result, it expects to be cash flow positive early in the fourth quarter. Its pathway to profitability is near.
WisdomTree Investments (WETF)
If you use exchange-traded funds (or ETFs) for part or all of your investing strategy, you’re likely familiar with WisdomTree Investments (NASDAQ:WETF). While nowhere near BlackRock (NYSE:BLK) or Vanguard, it does make it into 11th position with $47.6 billion in total U.S. assets as of July 31.
According to the company’s website, it had $73.5 billion in assets under management as of October 4, with the U.S. accounting for 68% and Europe for 32%. So far, in 2022, it had net inflows in the U.S. of $10.3 billion.
Although it saw revenues and adjusted net income retreat slightly in the second quarter, its net inflows suggest that its organic growth in a challenging environment will serve it well once some of the current headwinds fall away, such as inflation, higher interest rates, a possible recession, etc.
“We are one of very few asset managers generating strong organic growth, and we expect that momentum will continue as client engagement remains high,” stated CEO Jarrett Lilien in its Q2 2022 press release.
Moreover, WisdomTree currently trades at 2.3x sales, considerably lower than its five-year average of 3.6x. Based on its trailing 12-month revenue of $312.9 million and its five-year average, WisdomTree should have a market capitalization of $1.13 billion, 57% higher than its current value.
If the markets valued WisdomTree more appropriately, WETF would no longer be one of the cheap penny stocks.
On the date of publication, Will Ashworth 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.
