The recovery from the Covid-19 pandemic created a boom for many penny stocks as traders sought to capitalize on huge gains from unexpected disruptions and surge in demand. However, as the economy has stabilized post-pandemic, penny stocks have come back down to earth along with the broader market. While larger, more established companies have recovered or even thrived thanks to their staying power, many penny stocks continue to trade at depressed levels compared to their pandemic highs.

This creates an opportunity for savvy investors to grab these beaten-down penny stocks before they explode higher again. Many of these companies have expanding businesses and improving financials. Once market headwinds clear and risk appetite increases, undervalued penny stocks could quickly multiply in value. Getting in early allows you to maximize your potential upside.

In this article, I’ll identify seven penny stocks that appear ready to ride the next wave higher. These stocks still trade below $5 per share, but have strong fundamentals and catalysts that could propel them to much greater heights.

Redwire (RDW)

Redwire Corporation (NYSE:RDW) is an intriguing stock pick for investors seeking a potential breakout opportunity. The aerospace infrastructure company has seen its share price languish around the $3 level for over a year now, despite demonstrating strong and consistent revenue growth.

In its latest Q2 2023 earnings report, Redwire grew revenue 63.6% year-over-year to $60.1 million, its highest quarterly revenue ever. This also beat analyst estimates. Sales growth was driven by Redwire’s space infrastructure products, like its roll-out solar arrays, docking solutions, and satellite components. The company also achieved a milestone of $4.4 million in positive adjusted EBITDA, a dramatic $8.4 million improvement from Q2 2022. This profitability beat was thanks to Redwire’s “Excellence in Execution” initiatives to improve its contract mix, labor utilization, and program management.

Perhaps most significantly, Redwire generated a positive free cash flow of $1.1 million in Q2 2023, its first ever as a public company. This represented a $16.9 million swing from negative cash flow in the prior year period. Improving free cash flow often serves as a catalyst for share price appreciation. Redwire also grew its backlog 68% year-over-year to $272.8 million, providing excellen revenue visibility. Its pipeline stands at a robust $3.7 billion.

Redwire’s improving financials and sturdy backlog provide fundamental support for a move higher, while its long basing pattern points to a technical breakout ahead. For investors seeking an intriguing small-cap space infrastructure to play trading at a discount to peers, Redwire offers exciting upside potential if it can finally break free from its long consolidation. Analysts have a consensus price target of $9.50 on this stock, implying 220% upside.

Broadwind (BWEN)

For investors focused on relative value opportunities, Broadwind Inc. (NASDAQ:BWEN) stands out as a hidden gem. The cleantech company provides advanced wind tower structures, gearing systems, and services supporting clean energy markets. Broadwind shares trade at just a four-times forward earnings based on 2024 earnings estimates, despite nearly doubling revenue over the past two years.

In Q2 2023, Broadwind grew revenue by 1.6% year-over-year to $50.8 million, beating estimates. More importantly, adjusted EBITDA skyrocketed to $5.4 million compared to only $400,000 in Q2 2022. This significant profitability improvement came from clean energy tax credits and excellent operational execution. For the full year 2023, management raised EBITDA guidance to $17-19 million, representing roughly 20% growth versus 2022. Plus, Broadwind’s growth trajectory remains strong, with its backlog up $169 million to $262 million. Despite all this, Broadwind shares trade under 0.32-times forward sales.

Trading at such low valuation multiples relative to growth prospects, any hint of positive catalysts could ignite a powerful re-rating in Broadwind’s stock. Potential catalysts include customer announcements, partnerships, or investments to expand capacity. Technically, its long downtrend appears to have been based on a bullish double-bottom pattern.

For investors seeking deep value in renewable energy infrastructure, Broadwind presents an incredible bargain. Now trading near historic lows versus earnings power, the stock offers sizable upside when undervalued stocks come back into favor. Value stocks trading near single-digit price-earnings ratios have a history of enormous runs when shifting sentiment unlocks repricing potential.

Terran Orbital (LLAP)

Terran Orbital Corporation (NYSE:LLAP) presents an intriguing small-cap opportunity within the booming space economy. The company manufactures small satellites primarily serving defense, intelligence, civil, and commercial end markets. It has differentiated itself by providing satellite solutions, combining custom design, quick turnaround capabilities, and competitive pricing.

In Q2 2023, Terran Orbital grew revenue by 51% year-over-year to $32.2 million. While the company missed estimates due to some contract adjustments, this still marked a record sales quarter for the company. Terran Orbital achieved this growth despite supply chain and parts shortages impacting the space industry. Looking ahead, its backlog grew tremendously to $2.6 billion, fueled by a massive $2.4 billion order from Rivada Space Networks.

Management estimates it will be able to realize approximately 80% of its current backlog by the end of 2025. To fulfill this backlog, Terran Orbital is investing significantly in expanded production capacity. For example, its new 50 Tech facility that recently opened doubled its satellite production bandwidth to 20 per month. Another new 94,000-square-foot facility coming online in 2024 will boost capacity further.

For investors comfortable with some volatility and risk in small-cap names, Terran Orbital offers exposure to the vast potential of the commercial space economy. It could prove to be an exciting growth stock if it translates its massive backlog into revenue. The company expects to realize over $1 billion in revenue annually by 2024-2025. For long-term investors, buying into Terran Orbital’s vision before it becomes consensus could deliver outsized returns. The average analyst one-year upside potential here is 433%.

CarParts.com (PRTS)

Although sentiment has turned negative recently, CarParts.com (NASDAQ:PRTS) has attributes that make it a great pick for long-term investors. The leading online provider of aftermarket auto parts faces some economic headwinds currently pressuring results. However, powerful demographic trends underpin its long-term thesis.

Despite tough year-over-year comparisons, CarParts.com still increased sales by 0.4% in Q2 2023 to a record $177 million. However, EBITDA declined 62.5% to $3 million. Management cited inflationary pressures, higher digital marketing costs, and weakened consumer discretionary spending for the profitability squeeze. Nonetheless, the company continues generating positive cash flow, ending Q2 with a robust $80 million cash balance and no debt.

Looking ahead, CarParts.com believes it can grow sales by 3-5% in 2023 while remaining free cash flow positive. Although the near-term environment poses challenges, its long-term outlook is buttressed by compelling tailwinds. Importantly, the average vehicle age now exceeds 12.5 years, an all-time high. And annual miles driven keep increasing, now exceeding pre-pandemic levels. This supports the inevitable pent-up demand for maintenance and repairs.

The stock appears oversold based on near-term factors and offers a significant upside for patient investors. Accordingly, the consensus one-year upside potential with PRTS stock is nearly 150%.

Ammo Inc. (POWW)

With geopolitical tensions escalating globally, ammunition demand is surging, positioning Ammo Inc. (NASDAQ:POWW) for significant growth. The ongoing war in Ukraine has triggered increased defense spending across NATO countries, driving the need for expanded ammunition production and stockpiling. This global trend stands to benefit POWW as a leading U.S. ammo manufacturer.

In POWW’s fiscal Q1 2024 earnings, revenue declined 44% year-over-year to $34.3 million due to the company shifting focus from lower-margin ammunition sales to higher-margin casing sales. Casing sales jumped 80% to $6.2 million with attractive margins. Although overall sales dropped, gross margin expanded substantially from 27% to 41%, showcasing the profitability potential as POWW pivots its sales mix.

Despite soft consumer demand temporarily weighing on POWW’s ammunition sales, its long-term outlook appears very bright. Surging global military spending and the multi-year process of expanding ammo production capabilities will provide strong tailwinds. Although POWW faces some near-term headwinds on the commercial side, its casing sales growth and backlog trajectory point to substantial shareholder value creation in the years ahead.

In my opinion, POWW stock looks extremely undervalued relative to its growth prospects. With ammo demand surging, given rising global insecurity, patient investors could see massive upside in POWW shares over the next five years. The market has yet to appreciate the magnitude of opportunity here.

Redbubble Limited (RDBBF)

Although shares of global e-commerce marketplace Redbubble Limited (OTCMKTS:RDBBF) have slumped recently, the company’s improving financial trends suggest a turnaround may still be in the works. RDBBF connects independent artists with customers looking for unique products like apparel, home decor, phone cases, and stickers.

In its fiscal Q4 2023, which ended June 30, Redbubble generated a record gross profit after paid acquisition (GPAPA) margin of 28.5%, up 550 basis points year-over-year. This marked the fifth straight quarter of GPAPA margin expansion. The company attributed the increase to several marketplace enhancement initiatives. With GPAPA margins back near pre-pandemic levels, Redbubble is making tangible progress on restoring profitability.

Total Q4 revenue did decline roughly 10% year-over-year, as Redbubble reduced promotional activity to maximize profits in the tough consumer environment. However, revenue growth is estimated to be nearly 10% for the foreseeable future.. This gross margin improvement is key. Annualized cost savings of $45 million from recent restructuring efforts should also boost the bottom line going forward.

Still, Redbubble’s progress is obscured by the weak consumer spending backdrop. Its heavy Gen Z customer base is what keeps the long-term growth outlook favorable. A stabilization in consumer demand could catalyze Redbubble’s next upleg. With shares trading at just 0.3-times forward sales, the upside potential appears significant once macro conditions improve. despite the mixed sentiment among analysts, the consensus one-year upside potential is still at 68%.

FiscalNote Holdings (NOTE)

Although FiscalNote Holdings (NYSE:NOTE) has seen a lot of bearish sentiment recently, substantial upside likely remains in the AI-driven analytics provider. FiscalNote delivers proprietary data and AI-based solutions to help customers track regulatory and political intelligence.

After a difficult Q2 report, FiscalNote has still made tangible progress on restoring profitable growth. Revenue rose 21% year-over-year to $32.8 million, led by a 21% increase in high-margin subscription revenue. Although FiscalNote posted a $17 million operating loss, it reiterated full-year guidance.

More importantly, the company now expects to deliver positive adjusted EBITDA in Q3 2023, one quarter earlier than previously projected. It also anticipates exiting Q4 2023 with adjusted EBITDA margins approaching double digits, reflecting an impressive expansion in profitability.

FiscalNote remains unprofitable on a full-year basis, but its growth trajectory and improving margin outlook are impressive, given the economic slowdown. Revenue and adjusted EBITDA appear poised to inflect positively in 2023.

While risks exist in investing in unprofitable hypergrowth stocks, I believe FiscalNote has levers to expand margins and drive cash flow positive. With shares trading at just 1.8-times forward sales and a fraction of book value, NOTE stock offers substantial upside if execution continues. Analysts have a one-year target of $6.17, implying 222% upside.

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.