Generally, penny stocks have a poor reputation. It’s true that some penny stocks go on to make huge gains. However, the majority of firms with a rock bottom stock price got there because their business model failed to work out as expected or the company made major strategic blunders.
That’s particularly true for these seven penny stocks to avoid in December. All of these firms have delivered poor returns for shareholders thus far. And, situations are likely to go from bad to worse for these seven penny stocks to sell now.
Nikola (NASDAQ:NKLA) will probably always be infamous for its founder Trevor Milton’s antics. Milton was convicted on three fraud cases. Among other things, Milton’s Nikola corporation rolled a prototype vehicle down a hill to give the appearance that it was already in working operable condition when it in fact was not.
While Milton is currently seeking probation instead of jail time, Nikola has attempted to chart a fresh path under new leadership. The company built a factory and is attempting to commercialize some vehicles.
However, NKLA stock has fallen below $1 per share. The company generated a net loss of $1.0 billion over the past 12 months. Between Nikola’s tarnished reputation, poor balance sheet, and massive operating losses, it’s hard to see how Nikola could survive much longer.
Fisker (NYSE:FSR) is another electric vehicle (EV) firm facing massive headwinds. Shares are down 73% year to date (YTD) and a stunning 62% just over the past month alone.
Why the panic selling in Fisker shares? Let’s count the reasons. The firm lost another chief accounting officer just weeks after the prior one left, which has led to intense scrutiny of the firm’s financials. Also, Fisker finally started selling vehicles but already has a strained balance sheet. And the company’s Q3 results were a disaster. Not only did the numbers miss expectations, but also the company announced material weakness in its financial reporting.
It’s worth remembering that Henrik Fisker’s first car company went bust a decade ago. Given the operating results so far, it appears Fisker 2.0 is heading down the same road.
In theory, exporting LNG could create huge profits. After all, the U.S. has abundant natural gas supplies, whereas markets like Europe and parts of Asia need natural gas imports and are willing to pay a premium. Tellurian’s facility could play a role in servicing that market need.
Unfortunately, it appears the math isn’t going to work out. Tellurian’s facility isn’t expected to be in operation until 2027. However, the company is down to $59 million of cash on hand. Needless to say, it will need a lot more financing to complete its multi-billion dollar project.
However, the stock price is at 50 cents, and the firm’s existing bonds are trading at a massive discount to par. Substantial doubt exists as to whether Tellurian can remain a going concern and keep its business operational.
Pagaya Technologies (PGY)
Pagaya Technologies (NYSE:PGY) is a small fintech company focused on AI-driven consumer lending.
A few years ago, we saw a huge wave of fintech firms that promised to revolutionize lending. Most of these crashed and burned. It turns out that while technology is useful, lending is a complicated business. And existing banks have a great deal of data and expertise, which gives them an incumbent advantage.
In any case, while Pagaya has built a large revenue base, it has struggled with profitability. Historically, the company has lost money. Analysts project it to turn slightly profitable this year. But with expected earnings per share of two cents, that still amounts to a more than 50 times forward P/E ratio for a speculative financial company.
Adding to the worries, Pagaya’s chief financial officer (CFO) recently resigned. It’s not a good look when a CFO quits, and that’s especially true for a lending business. Investors should be extremely careful with PGY stock heading into 2024.
FuelCell Energy (FCEL)
Hydrogen holds a great deal of promise as a renewable fuel. However, that has rarely translated to positive returns for shareholders.
FuelCell Energy (NASDAQ:FCEL) is a great example of that fact. FCEL stock peaked back at a split-adjusted high of more than $6,000 per share in 2000. Now, 23 years later, the company still soldiers on, attempting to find a market for its direct fuel dell power facilities.
Alas, demand has been hard to come by. The company hasn’t generated an operating profit in even a single year out of the past decade. Currently, revenues are lower than they were in 2013. FuelCell has had more than enough time and shareholder capital to make a working business out of its hydrogen plans. Instead, it has failed repeatedly, and investors should move on.
Tilray Brands (TLRY)
Tilray (NASDAQ:TLRY) is a cannabis and consumer products company that was once a popular trading stock. TLRY shares briefly peaked at $300 each in 2018. Now, they are down by more than 99% from that all-time high.
What went wrong? Just about everything. Cannabis failed to become nearly as large and lucrative market as expected in Canada. And Tilray has diluted shareholders to an almost unfathomable extent while attempting to go into other businesses such as craft brewing.
Even with TLRY stock below $2, the company still has an outsized $1.3 billion market cap due to the massive amounts of share dilution along the way. Also, the company just raised its authorized share cap last week, which paves the way for yet more stock offerings and an ever-sinking share price. Analysts see the company remaining unprofitable through at least the year 2026, and there’s no reason for investors to stick around over that timeframe.
Earlier this year, it seemed that any company with “AI” in its name could look forward to seeing its share price skyrocket. Bigbear.ai (NYSE:BBAI) took part in that trend, with shares leaping more than 500% at one point.
However, as the initial round of AI enthusiasm has matured, investors have gravitated into companies with compelling AI strategies. At the same time, they are selling off firms that are merely taking part in the buzz around the technology.
Bigbear.ai claims to provide AI and machine learning for decision support. However, it’s unclear if this is AI that has become popular this year, and just glorified consulting services.
In any case, Bigbear.ai has failed to cash in on the wave of AI excitement this year. In its most recent quarter, revenues plunged 16% year over year (YOY). Clearly, it’s not the sort of result you’d expect from a promising AI firm, given the recent huge interest in the technology.
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.
On the date of publication, Ian Bezek 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.
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