Penny Powerhouses: 3 Stocks on the Brink of a Windfall
It’s time to position for a penny stock surge!
The DOW Jones Industrial Average is up by approximately 16% year-on-year, illustrating the momentum embedded in the stock market. However, the question now becomes: How can investors enhance their returns even further?
An ideal way to proliferate returns is to cash out on some of the blue-chip names and allocate capital to penny stocks. Although risky in isolation, penny stocks can lower investment risk if added to a diversified portfolio while producing life-changing returns.
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Fortunately, numerous penny stocks remain overlooked and underpriced. Sure, value and growth traps are salient to penny stocks, but don’t fret; I ensured I removed the froth before collating my best-in-class picks.
Here are three penny stocks worth considering if you’re seeking a windfall.
DLH Holdings (DLHC)
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DLH Holdings (NASDAQ:DLHC) is an overlooked gem. The company provides health and national security solutions to federal governments and related agencies via offerings such as research and development, systems engineering, and digital transformation.
Although a mature company, DLH Holdings possesses a 10-year compound annual growth rate (CAGR) of 21.98%, illustrating its secular growth. DLH Holdings’ secular growth is supplemented with top-line sustainability, as 97.2% of its revenue derives from federal government constituents.
Why am I recommending DLH and not one of its peers? DLH Holdings fundamentals are best-in-class. For instance, its days sales outstanding ratio of 51 ranks better than the industry average of 61 days. Furthermore, its targeted 3.5x leverage ratio is supported by a robust first-quarter cash from operations figure of $5.1 million, illustrating scalability.
Lastly, DLH Holdings has a price-to-sales ratio of merely 0.55x, suggesting its stock is significantly undervalued. DLH stock seems like a stellar investment opportunity!
VerifyMe (VRME)
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VerifyMe (NASDAQ:VRME) is a highly touted early-stage company with a novel business model. The firm addresses counterfeit risk for retail customers by leveraging authentication software to intermediate between brand owners and customers.
Novelty should always be scrutinized because a good business idea doesn’t automatically translate into financial success. However, VerifiMe’s early-stage financial results are robust, showing successful implementation. VerifyMe’s third-quarter earnings report revealed a revenue beat of $104,000. Although the company is unprofitable, its current objective is scale, which is clearly being achieved considering its five-year CAGR of 2.77x.
I added VerifyMe to the list due to its broad end-market and unique position within its value chain. Investors will likely benefit from secular growth or, even better, a premium-to-fair value takeover. As such, aligning VRME stock with a “windfall” opportunity.
To those of you seeking quantitative evidence. VerifyMe’s stock has a price-to-sales ratio of 0.42x, indicating absolute value. In addition, the stock recently edged above its 50- and 100-day moving averages, suggesting a momentum trend is unfolding.
In essence, VerifyMe is a unicorn with an underpriced stock.
PowerFleet (PWFL)
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PowerFleet (NASDAQ:PWFL) stock is an event-driven opportunity. The firm is in the process of combining its operations with Mix Telematics (NYSE:MIXT), wherein Mix’s shareholders will exchange 100% of their shares for 65% of PWFL’s float.
Both entities’ business models emphasize integrated fleet, asset, and supply-chain intelligence management. As such, the business combination acts as a horizontal integration play to unlock financial and operational synergies.
The amalgamated entity will have a total revenue of $279 million, a subscriber base of 1.7 million, and over 1800 employees. An increase in size will likely introduce economies of scale and an enhanced capital structure, leading to improved shareholder value. As such, this deal has accretive written all over it.
PWFL and MIXT are both undervalued on a standalone basis. For instance, PWFL and MIXT have price-to-sales ratios of 0.85x and 1.45x apiece. Additionally, PWFL stock is above its 10-, 50-, 100-, and 200-day moving averages, suggesting a momentum trend has shaped.
On the date of publication, Steve Booyens 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.
Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for institutional equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London. Furthermore, Steve has passed CFA Levels 1 & 2 and is working toward his Ph.D. in Finance. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, REITs, fixed-income funds, CEFs, and ETFs.
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