With the speculative mania of 2020 and 2021 now a distant memory, many penny stocks that surged have all but given back their gains.
Along with this, many former high-fliers have joined them, as members of the penny stock club. Once trading at lofty levels, these names now command more modest prices.
In some situations, it’s possible investors have overreacted, resulting in some names becoming oversold. They may be worth a look. That’s not the case for most of them, though. For the most part, you should assume they are far from being bargains, even as they sport extremely low share prices.
These seven popular penny stocks have declines that are as much the product of worsening fundamentals as they are the product of changing market conditions.
Don’t go bottom fishing. Avoid them instead.
|BBIG||Vinco Ventures, Inc.||$2.06|
|CEI||Camber Energy, Inc.||$0.644|
|MULN||Mullen Automotive, Inc.||$1.27|
|TLRY||Tilray Brands, Inc.||$4.20|
Penny Stocks: Vinco Ventures (BBIG)
Hope and hype have been central to the story with Vinco Ventures (NASDAQ:BBIG). Late last summer and into early fall, shares in this digital holding company made true “to the moon” moves.
That was thanks to both excitement about its crypto/non-fungible token (NFT) subsidiary Cryptyde, plus excitement about its investment in Lomotif, a video app that’s similar to TikTok. Even today, despite the enthusiasm taking a massive hit and BBIG stock’s falling price, the hype’s still in play.
With the Cryptyde spin-off still in limbo, plus other concerns, it’s best to stay away. High amounts of dilution give it (despite the big stock price drop) a valuation vastly exceeding its likely underlying value. There’s a greater chance it continues to sink rather than make a recovery.
Camber Energy (CEI)
Camber Energy (NYSEAMERICAN:CEI) is another name that took off during the tail end of the meme stocks phenomenon. Going from around 40 cents, to nearly $5 per share last September, this oil and gas turned green-wave stock reached prices way out of sync with its fundamentals.
However, its epic meme wave didn’t last long. A short report from Kerrisdale Capital released in October brought it to a screeching halt. Despite Camber’s attempts to defend itself from the allegations made by Kerrisdale, CEI stock fell to sub-$1 per share prices by the start of 2022.
Although it has held steady in recent months, stay away. With most of its assets being held through its majority owned unit Viking Energy Group (OTCMKTS:VKIN), it makes little sense why CEI has a $273 million market capitalization, while VKIN has a $68.8 million market capitalization.
Mullen Automotive (MULN)
Down more than 91% from its all-time high, Mullen Automotive (NASDAQ:MULN) may seem like a great moonshot electric vehicle (EV) wager. Not so fast, however.
While this also-ran has talked a big game, whether it will ultimately deliver is what’s highly uncertain.
The early-stage EV maker is highly undercapitalized. Burning through cash almost as quickly as it has raised it, there’s a strong chance Mullin will have to raise more money under similarly dilutive terms. This could mean another massive move lower for MULN stock.
The company’s low stock price has kept the short side at bay, but this could change if Mullen decides to do a reverse stock split. A reverse split is very likely, if it falls below $1 per share again, in order to maintain its Nasdaq market listing.
Penny Stocks: Skillz (SKLZ)
An operator of a cash competition-based mobile gaming platform, in early 2021 Skillz (NYSE:SKLZ) was seen as a disruptor with a lot of potential. Investors bid it up to as much as $43.72 per share, betting that it would scale into a multi-billion dollar business.
Flash forward to now. SKLZ stock is in the market graveyard. Trading for less than $2 per share today, what happened? It became clear that this company didn’t have a clear path to profitability. As InvestorPlace’s Louis Navellier argued last month that its heavy upfront spending failed to lock down long-time users. Revenue remained well below customer acquisition costs.
Skillz’s management is currently trying to fix this. Skillz has slashed marketing spend, and put more focus on improving the quality of its games. Still, it’s expected to be highly unprofitable for the time being. There’s little reason to place a wager on the situation improving.
Hopes for U.S. pot legalization in the near future are up in smoke. Most of the major exchange-listed pot stocks have become penny stocks. This includes Tilray (NASDAQ:TLRY). Entering the American market (a possible billion-dollar opportunity) remains many years away for this Canada-based cannabis company.
For now, a move back to higher prices depends on improved performance of its main Canada-based operations and success with its expansion into markets like Europe. The company has wrung out $76 million in cost savings from its Aphria merger, but it’s still expected to report negative earnings both this fiscal year. The same goes for the next fiscal year.
TLRY stock has a market capitalization of $2.26 billion. It’s another low priced stock that’s actually pricey, compared to its fundamentals. Tilray is not likely to make another big move until there’s major U.S. pot reform.
Vroom (NASDAQ:VRM), which operates an online used car buying platform, is yet another busted growth play that’s dropped into the penny stocks category. If you think Skillz’s fall from its all-time high was epic, wait until you see how far this stock has fallen.
A few months after it went public in 2020, VRM stock hit an all-time high of $73.87 per share. Today, it trades for $1.30 per share. However, don’t view the fact that it trades for pennies on the dollar as a sign that it’s worth buying.
The overheated used car market is showing signs of cooling down. Vroom’s gross margins (already slim at 7%) could come under more pressure. Its operating losses may in turn become wider, resulting in continued high cash burn. The market has correctly re-priced it, so stay away.
Penny Stocks: ContextLogic (WISH)
Debuting at the height of the new normal, e-commerce play ContextLogic (NASDAQ:WISH) has been a pandemic play, a meme stock, and now, a penny stock. The company, which owns the Wish.com platform, has been hit hard by the market’s shifting sentiment on growth stocks.
But the main reason behind its collapse was with its dramatic shift from high revenue growth to negative revenue growth. Like Skillz, it was able to grow its revenue by spending heavily to attract one-time customers. This of course made it highly unprofitable. Yes, Since last year ContextLogic has changed course.
Unfortunately, its new focus on building a user base rather than generating sales through a heavy ad spend has yet to result in improved results. That’s why WISH stock has plunged to such bargain-basement prices. Until its quarterly earnings signal that a turnaround is taking shape, avoid WISH stock.
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, Thomas Niel 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.