There are speculative ideas and then there are the best penny stocks under $3. And don’t be fooled by the word “best.” At the end of the day, we’re still talking about extremely risky public enterprises that could fail catastrophically. The only way to participate in this segment is to do so with money you can easily afford to lose. Even then, you might want to think twice.
Still, once people have an idea in their heads, it’s difficult to shake. Understanding this psychology, I took the time to filter out enterprises that feature an Altman Z-Score of at least 4. This way, you’re dealing with companies that mathematically should have a lower-than-average risk of bankruptcy. Of course, that’s no guarantee that these ideas won’t lose money. But if you like to live dangerously, you can do so somewhat sensibly with the best penny stocks under $3.
RLX Technology (RLX)
Based in China, RLX Technology (NYSE:RLX) might sound like a semiconductor brand. However, the company specializes in e-vapor (basically e-cigarette) products. Fundamentally, the narrative could be an attractive one. While global smoking prevalence may be on the decline, e-cigarettes exploded higher in popularity. Therefore, it’s possible that RLX might be a beneficiary.
Although RLX ranks among the best penny stocks under $3, it features a surprisingly robust balance sheet. Conspicuously, its cash-to-debt ratio stands at 125.55 times, beating out 85.42% of companies listed in the tobacco industry. As well, its Altman Z-Score pings at nearly 23, suggesting an extremely low risk of bankruptcy over the next two years.
If that wasn’t enough, RLX enjoys a highly profitable enterprise with a net margin of 27.41%. Finally, Citigroup’s Lydia Ling pegs RLX as a buy. Also, the expert anticipates RLX hitting $3.15 per share. If so, such a move would translate to 12% upside.
Cipher Mining (CIFR)
Representing exactly what you think it is, Cipher Mining (NASDAQ:CIFR) focuses on expanding and strengthening cryptocurrency-based infrastructure in the U.S. Legally, this ambitious initiative might face headwinds. After all, with the implosion of once-popular crypto-trading platforms like FTX, several policymakers have called for greater regulations. Therefore, CIFR presents high risks.
Nevertheless, Cipher may be one of the best penny stocks under $3 partially because of the crypto sector’s stubborn resilience. In addition, the blockchain ecosystem enjoys significant, arguably unprecedented loyalty. To be sure, Cipher might put this loyalty to the test. While the company benefits from a strong Altman Z-Score (4.37), the rest of the financials present a rough picture.
Nevertheless, analysts peg CIFR as a unanimous strong buy. Their average price target stands at $2.90, implying nearly 13% upside potential.
Denison Mines (DNN)
Generally, speculative investments – even those deemed to be the best penny stocks under $3 – always present hefty risks. However, if I had to bet on any of these enterprises, I’d probably put the heaviest allocation toward Denison Mines (NYSEAMERICAN:DNN). As a uranium exploration, development, and production specialist, Denison benefits from extraordinary relevancies.
Most importantly, uranium benefits from unparalleled energy density. As the Nuclear Energy Institute remarked, “[o]ne uranium fuel pellet creates as much energy as one ton of coal, 149 gallons of oil or 17000 cubic feet of natural gas.” Therefore, we can’t talk about energy independence without mentioning uranium, making DNN a compelling idea among the best penny stocks under $3.
Also, I appreciate that Denison features a very strong balance sheet. However, the good news ends there as the enterprise struggles with negative sales and operating margins. Still, TD Securities analyst Craig Hutchison pegs DNN a buy. Also, the expert believes shares will hit $1.67, implying 59% upside potential.
Another enticing idea among the best penny stocks under $3, Zomedica (NYSEAMERICAN:ZOM) aims to advance animal health and veterinarian success. The company might attract the most attention for its flagship product Truforma, an in-clinic biosensor testing platform. As well, it also features PulseVet, a shockwave technology for regeneration. Notably, ZOM gained nearly 34% of its equity value since the Jan. opener.
Fundamentally, I appreciate Zomedica because Americans love their furry friends. Better yet, they’re willing to open their wallets. Indeed, the American Pet Products Association reported last year that the pet industry exceeded $123 billion in sales, setting a new benchmark.
Encouragingly, Zomedica enjoys a stout balance sheet. However, the company falls short in the profitability department, making it a risky enterprise. Despite the challenges, Dawson James analyst Jason Kolbert pegs ZOM as a buy. Moreover, the expert anticipates shares hitting 44 cents a pop, implying nearly 106% upside potential.
Valens Semiconductor (VLN)
On paper, Valens Semiconductor (NYSE:VLN) presents an attractive case for best penny stocks under $3. An Israeli fabless manufacturing company, Valens provides semiconductors for the automotive and audio-video industries. Both sectors command relevancies, especially the former. Unfortunately, the market needs plenty of convincing. Since the start of the year, VLN fell more than 38%, a brutal collapse.
Are jittery investors wrong for abandoning ship? Well, I suppose it depends on what metrics you value the most. For those seeking a robust balance sheet, Valens seems palatable. For example, its cash-to-debt ratio pings at an impressive 43.2 times.
However, the rest of the fiscal picture presents concerns to put it diplomatically. Its three-year revenue growth rate fell to 43.5% below breakeven if that tells you anything. Shockingly, though, Wall Street analysts peg VLN as a unanimous strong buy. Their average price target stands at $7.50, implying nearly 176% upside potential.
Newegg Commerce (NEGG)
An American online retailer, Newegg Commerce (NASDAQ:NEGG) focuses on computer hardware and consumer electronics. Although an interesting example for best penny stocks under $3, the main challenge for Newegg centers on lack of distinction. In other words, it doesn’t do anything all that special. Therefore, NEGG finds itself down a staggering 82% on a trailing-year basis.
For most folks, that stat should represent the end of the discussion: stop right there, do not pass Go, and do not collect $200. However, for the morbidly curious, Newegg features an Altman Z-Score of 4. Based on the underlying formula, Newegg mathematically features low bankruptcy risk. However, you can look at other stats and figure it faces low odds of upside momentum. In particular, its negative trailing-year operating and net margins present huge distractions.
Still, Noble Financial analyst Michael Kupinski believes NEGG has potential. The expert targets $3.50, implying upside potential of nearly 187%.
A biotechnology firm, Immutep (NASDAQ:IMMP) primarily operates in the field of cancer immunotherapy. Because of its core business, Immutep naturally courts public sympathies for clinical success. Sadly, though, IMMP lacks in market success. Since the Jan. opener, IMMP slipped almost 13%. In the past 365 days, it lost nearly 35% of equity value.
However, a major factor contributing to Immutep’s inclusion on this list of best penny stocks under $3 centers on its vast possibilities. Basically, the company is one clinical breakthrough away from massive upside. As well, the biotech firm features a strong balance sheet. Notably, its cash-to-debt ratio is 71.75 times, beating out 74% of sector rivals.
However, the other metrics tend to be quite shoddy. Glaringly, its profitability margins fell into the deep, dark abyss. Also, it seems overpriced based on enterprise-value ratios against key metrics like revenue and EBITDA. Nevertheless, Maxim Group’s Jason McCarthy pegs IMMP a buy. Moreover, the expert believes shares will hit $8, implying 400% upside potential.
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On the date of publication, Josh Enomoto 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.