7 Penny Stocks That Might Not Survive the Next Market Downturn
As uncertainty reigns, it’s time to check your portfolio for penny stocks to sell.
The allure of penny stocks remains undeniable, and there are genuine diamonds hidden within the realm of stocks trading under $5 per share.
Others have proven incredibly volatile in the stock market rout last year and continue to shed value as investors look for more resilient bets. These are the penny stocks to sell.
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Granted, they might witness occasional surges amidst retail trading frenzies, but these are the penny stocks to sell that won’t make the long haul. Lurking in this domain are those deceptive “value traps.”
BRC Inc. (BRCC)
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BRC Inc. (NYSE:BRCC), the corporate powerhouse behind Black Rifle Coffee, made major waves in the stock market, boldly positioning itself as a counterpoint to the renowned Starbucks.
The initial buzz painted a rosy picture of BRCC metamorphosing into the so-called “Red State Starbucks,” a sentiment that has faded recently.
Even with a notable 33% surge in sales in its last quarter, pursuing profitability remains challenging for the company. The company’s plummeting net income, EBITDA, and return on common equity, registering year-over-year figures of -5.3%, -31%, and a staggering -76%, respectively is particularly concerning.
This gloomy financial landscape has precipitated a sharp decline in the company’s stock valuation. Once soaring at a promising $30 per share, it’s now languishing around the $4 mark, trading in the penny stock territory.
Nikola (NKLA)
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This past summer, Nikola (NASDAQ:NKLA) caught another wave of meme-stock attention, soaring beyond $3 per share, buoyed by news of a hefty purchase order.
However, while its current price tag might seem like a bargain, many experts concur that the stock is overvalued, trading at more than 8.6 times forward sales estimates.
The company’s cash balances have dropped by 71.44%, plummeting from 840.9 million in December 2020 to a meager 240 million recently.
As swiftly as it ascended, NKLA’s stock tripped and stumbled, relinquishing most of its gains. Adding to the storm are troubling developments, such as its dilutive convertible note offering.
As outlined by Electrek, Nikola trucks have developed an unsettling reputation on the heels of a recall in August, where 209 of its battery-electric vehicles were recalled because of battery issues, alongside multiple fire incidents linked to their vehicles in Arizona.
This is one of the no-brainer penny stocks to sell.
Rigetti Computing (RGTI)
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Rigetti Computing (NASDAQ:RGTI) is a fledgling tech outfit on a mission to usher in the era of quantum computing applications.
Originating during the SPAC arena, RGTI shares have witnessed a tumultuous journey. From an initial price of $10, its stock price has nosedived to under a dollar.
Yet, the winds shifted between May and the end of July, propelling the stock upwards by a staggering 300%.
Not everything is rosy, though, with Quantum researchers raising eyebrows at its significant error rates mainly associated with superconducting transmon qubits.
Even as efforts intensify to rectify this, investors seem to lean towards other quantum avenues, notably the trapped ion systems embraced by competitors such as IonQ (NYSE:IONQ).
With its hype dissipating, RGTI’s stock seems poised for a sharp descent. Delving deeper reveals Rigetti as a diminutive contender with sluggish revenues, championing what many perceive as a second-tier quantum system.
Opendoor Technologies (OPEN)
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The current housing landscape has turned out better than expected for Opendoor Technologies (NASDAQ:OPEN).
The bulls are betting on a “soft landing” in the housing market. Though a soft landing appears more likely, the potential downside isn’t worth the chance.
Alarmingly, the company’s second-quarter figures reinforce this cautionary stance, as sales plummeted by 53%.
Opendoor’s projected guidance shows a 50% quarter-over-quarter revenue drop in its third quarter. Perhaps such conservative estimations by the management might be a strategic move to maneuver through the unpredictable housing terrain.
In either case, OPEN stock offers low rewards with substantial risk.
Petco Health and Wellness (WOOF)
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Over the past year, Petco Health and Wellness (NASDAQ:WOOF) has experienced a dizzying descent, with its stock plummeting over 50%.
Peering into the company’s financial guidance provides telling insights. The company was initially projecting earnings of 40 cents to 48 cents per share for the fiscal year ending January 2024.
Still, its updated expectations paint a bleaker picture, estimating earnings between 24 cents and 30 cents.
Petco’s aggressive price-slashing strategy, designed to bolster demand, looms ominously over profit margins. Ongoing underperformance in segments, including supplies and companion animals, raises red flags.
Investors are casting a skeptical eye on management’s assurances about meeting its sales goals for the current year, as evidenced by the stock’s decline post-earnings release.
FuboTV (FUBO)
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FuboTV (NYSE:FUBO) aimed to break new ground by becoming a haven for sports enthusiasts in the ever-evolving realm of live TV.
The allure of its unique offering lies in its live television broadcasts with a spotlight on elusive sporting events that fans often scramble to stream.
However, securing sporting content comes with a massive price tag. This was evident in FuboTV’s staggering net loss of $438 million on a trailing-twelve-month basis. With a fragile balance sheet, sustaining these losses will likely be untenable.
It’s been a rollercoaster ride for FUBO stockholders, with the shares nose-diving over 80% from their highs.
Yet, in a surprising twist, FuboTV witnessed a 57% bump in price since January. However, this bounce-back is muddied by continued losses, even after shelving its sports book to focus on the competitive streaming domain.
Growth persists, but the losses still gnaw at the company’s valuation. FuboTV, as forecasts indicate, is set to remain submerged in the red until at least 2025.
Bitfarms (BITF)
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Bitfarms (NASDAQ:BITF) is a cryptocurrency mining player that aims to monetize by mining Bitcoins (BTC-USD) at a fraction of the cost and offloading them for a profit.
However, similar to traditional mining, this digital counterpart isn’t as straightforward as it appears on paper. Growing expenses, especially in the realms of GPUs and electricity, have ensnared many miners in unprofitable ventures.
A quick peek into its recent financials reveals a grim scenario with negative sales growth in four consecutive quarters. In its most recent quarter, its sales came in at $35.48 million, a 15.2% drop compared to the prior-year period.
It generated a discouraging gross margin of negative 17%. The bulls may harp on its low mining cash costs, but this narrative conveniently sidesteps intangibles such as depreciation.
The perpetual cycle of machinery upgrades, essential to maintaining a competitive edge in mining, further strains its balance sheet.
On the date of publication, Muslim Farooque 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
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
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