Often priced under $5 per share, penny stocks can appear attractive to investors seeking high-risk, high-reward opportunities. These stocks typically present companies with small market capitalizations and volatile trading patterns. While they can offer substantial gains over short periods, they also carry notable risks. Some of them include their susceptibility to manipulation, low liquidity, and the potential for sudden price swings. This makes them unsuitable for most investors’ portfolios.
However, opportunities with significant potential lie in this risky corner of the stock market. Sure, most penny stocks are penny stocks for a reason. Yet, some demonstrate promising prospects. For instance, a biotech startup may be on the cusp of FDA approval for a groundbreaking drug. Also, a tech company might be pioneering a revolutionary AI-driven platform. In other cases, a penny stock may be too cheap to overlook at its current levels. This can be true despite its “penny stock” status.
In this article, I have selected three penny stocks that either showcase convincing growth narratives or are too cheap on fundamentals. While they carry various risks, these penny stocks could have the potential to generate substantial returns for daring investors if their bullish investment theses materialize.
Planet Labs (PL)
Currently trading at just $1.85 per share, Planet Labs (NYSE:PL) is the first promising penny stock on my list. Planet Labs is a leading player in Earth imaging and satellite data analytics. It is recognized for its fleet of small satellites that feed high-resolution imagery of the entire globe. Its satellites monitor environmental changes, track agricultural shifts, and aid in disaster response efforts globally.
In recent quarters, growing demand across a wide range of industries backed Planet Labs’ growth. These agriculture, forestry, urban planning, and defense. Furthermore, such customers need access to Planet Labs’ imagery data on a recurring basis. As a result, the company benefits significantly from multi-year contracts. This ensures. predictable cash flow and revenue visibility.
To illustrate the underlying demand for Planet Labs’ imagery services, at the end of its fiscal Q1-2025 period (i.e., the end of April 2024), the company had 1,031 clients. Notably, the number of clients has grown sequentially between every quarter over the past three years. Furthermore, Planet Labs’ revenues were $60.4 million for the quarter. Revenues were up 15% compared to last year. Multi-year contracts drove more than 90% of revenues.
While Planet Labs remains unprofitable, an argument that bears may bring up, its margins are inching higher by the quarter, implying the potential for a positive bottom line sooner rather than later.
Latham Group (SWIM)
Shifting gears to my second penny stock to buy, let’s take a look at Latham Group (NASDAQ:SWIM). Currently trading at $3.75 per share, Latham is a leading player in the swimming pool market. Its diverse portfolio of pool components includes fiberglass pools, automatic safety covers, and various related accessories. The company caters to both residential homeowners and commercial clients and is generally praised for offering customizable solutions that promote durability, aesthetics, and energy efficiency.
The main issue the company has been facing that has hampered its investment case is its razor-thin margins. In recent years, Latham has either lost money or posted barely positive margins. Combined with the fact that its sales have also declined following the pandemic-induced boom in the pool market in 2021, you can see why Latham became a penny stock in the meantime.
Nevertheless, Latham’s growth prospects remain strong. They include the rising demand for home improvement projects and the popularity of residential pools. This trend, in turn, is driven by lifestyle changes and a growing emphasis on outdoor living spaces. Moreover, with shares trading at a mere 0.85 times this year’s projected sales, the stock is poised for significant upward momentum once Latham achieves sustainable positive margins.
Dynagas LNG Partners (DLNG)
My last penny stock with notable potential is Dynagas LNG Partners (NYSE:DLNG). It operates as a master limited partnership, specializing in owning and operating liquefied natural gas (LNG) carriers. The partnership primarily serves energy giants engaged in global LNG production, transportation, and distribution. Its Arctic Aurora vessel, for instance, is now being employed by Equinor (NYSE: EQNR).
Currently hovering at $3.77, Dynagas’ stock price has underperformed significantly during the past decade. This resulted from the company loading its balance sheet with expensive debt and high-yield preferred shares that drained out common holders. However, notable deleveraging has taken place in recent years, with management allocating the bulk of its operating cash flow toward reducing debt and growing shareholder value. Shares have built upward momentum lately, a trend I expect to persist as long as management keeps focusing on strengthening the partnership’s financial position.
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.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Nikolaos Sismanis did not hold (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.
