Caution! 7 Penny Stocks That Have Much Further to Fall

There are many great opportunities in “penny stock territory,” but there are far more stocks trading for $5 per share or less that are best classified as penny stocks to sell.

Most of the names that belong in the penny stock “sell” pile are speculative growth stories. Former high-fliers valued on future potential rather than current results, that have experienced a freefall into the market junkyard as investors dial back expectations.

These stocks can sometimes experience short-term boosts during waves of speculative frenzy, but over a longer time frame typically produce heavy losses.

Alongside this, there are some stocks better described as “value traps.” These stocks may appear on paper to be undervalued, or at the very least reasonably priced relative to upside potential from a successful turnaround.

The problem with these names is that, with poor fundamentals, the cheap names “stay cheap,” and the turnarounds usually never turn themselves around.

With this in mind, I recommend bottom-fishers take heed about these seven penny stocks to sell. While each one may at first look like a “buy the dip” opportunity, a closer look suggests further downside ahead.

Aurora Cannabis (ACB)

Pot stocks like Aurora Cannabis (NASDAQ:ACB) rallied earlier this month, because of speculation about a more favorable regulatory environment in the U.S. for marijuana. Yet with this run-up among pot stocks now over, consider it best to “just say no” to this sector.

Sure, there has been some more company-specific news as well recently with ACB stock. Last week, the company announced that it was repurchasing some of its outstanding convertible debt.

Still, while reducing debt is a positive, and the Canada-based cannabis purveyor is engaging in other turnaround efforts, as I argued last month, these efforts alone may not be enough to move the needle.

Coupled with limited upside potential is the risk of further price declines. Besides a lack of progress in improving Aurora’s fiscal performance, if ACB conducts a reverse stock-split (to avoid delisting), this too may place more pressure on shares.

BRC (BRCC)

BRC Inc. (NYSE:BRCC) is the parent company of Black Rifle Coffee, a coffee retailer that markets itself as a politically conservative alternative to Starbucks (NASDAQ:SBUX).

However, irrespective of one’s politics, BRCC stock is one of the penny stocks to sell. Since this company went public in early 2022, once-high expectations of this chain scaling into a “Red State Starbucks” have been dialed back.

Although the company keeps growing, with revenue rising 33% last quarter, BRC still hasn’t reached profitability.

Because of this disappointment, BRCC has fallen from prices topping $30 per share, all the way t0 around $4.25 per share, penny stock territory.

In theory, if the company lives up to sell-side earnings expectations in 2024 and 2025, it may sustain today’s valuation. With even adjusted EBITDA still coming in negative, this may be a tall order.

FuelCell Energy (FCEL)

Last month, I cited worsening fundamentals and the risk of heavy shareholder dilutions made FuelCell Energy (NASDAQ:FCEL) a clear-cut sell.

Shares in the hydrogen fuel cell company have dropped significantly (by around 36.7%) since then, but my bearish view still stands.

Largely, because (as seen in FuelCell’s latest quarterly results), issues like underwhelming revenue growth, high cash burn, and shareholder dilution have not gone away.

In fact, as a Seeking Alpha commentator recently pointed out, the company keeps moving ahead with plans to double the authorized share count with FCEL stock, a possible sign of even more heavy shareholder dilution.

Those considering FCEL as a short-squeeze play should especially keep this dilution in mind. Because 17.8% of FCEL’s float has been sold short, the continued increase of shares available in the open market will probably limit the stock’s squeeze potential.

FuboTV (FUBO)

Admittedly, it may seem too late to declare that FuboTV (NYSE:FUBO) is one of the penny stocks to sell.

This sports streaming company’s shares have fallen by more than 95% from their all-time closing high, hit during the stock’s brief time as a hot play among investors looking to gamble on the sports book legalization trend.

Yes, FUBO stock has been making somewhat of a comeback year-to-date. Since January, shares have rallied by around 59%.

Yet even as growth has continued, despite shuttering its sportsbook business and going all-in on the just-as-competitive streaming business, FuboTV’s losses aren’t narrowing fast enough to sustain today’s valuation.

Unlike BRCC, which should be profitable within two years, forecasts call for FUBO to remain in the red through at least 2025. Instead of continuing its comeback, the stock may be more likely to retest its 52-week low (under $1 per share).

Nikola (NKLA)

During the summer, Nikola (NASDAQ:NKLA) experienced yet another “meme wave,” briefly surging to prices above $3 per share. It followed news the electric truck company had received a big-ticket purchase order.

Almost as quickly as it surged, NKLA stock sank, coughing back the bulk of these gains. Numerous negative developments have caused this, including news of a dilutive convertible note offering, and continued reports of the company’s vehicles catching on fire.

Although the stock keeps making rollercoaster moves, if you’re holding Nikola on comeback hopes, consider now the time to sell.

Heavy cash burn is likely to continue, and much like some of the other EV “also-rans,” like Lordstown Motors (OTCMKTS:RIDEQ), this early-stage company may be coming close to hitting the “end of the road.”

Opendoor Technologies (OPEN)

The bull case for real estate iBuyer Opendoor Technologies (NASDAQ:OPEN) hinges heavily on a “soft landing” for the housing market.

Sure, a “soft landing” scenario seems to be playing out now. Tight supply and the “lock in effect” are helping to keep housing prices steady post-bubble.

However, don’t assume the U.S. is out of the woods. As InvestorPlace’s Alex Sirois recently pointed out, a cooling jobs market could lead to a recession. This could increase defaults and forced selling, both of which may cause a big reversal in housing prices.

If this scenario plays out, sentiment for OPEN stock could shift from cautiously optimistic back to full pessimism.

Weigh this downside risk against questionable upside potential due to Opendoor’s own profitability challenges. Put it all together, and OPEN definitely belongs in the “penny stocks to sell” category.

Petco Health and Wellness (WOOF)

Petco Health and Wellness (NASDAQ:WOOF) has tumbled by more than two-thirds over the past twelve months.

With this massive pullback, it may seem as if there is big rebound potential for shares. At least, given forecasts of an earnings rebound in the coming years.

Even so, WOOF stock could end up staying a dog with many fleas, to the chagrin of bottom-fishers buying it today.

Take a look at the pet retail and health services company’s latest updates to guidance.

Previously guiding for earnings of between 40 and 48 cents per share this fiscal year (ending January 2024), Petco now expects earnings to come in between 24 and 30 cents per share.

Some may argue that this downward revision is already baked-in, as WOOF tumbled by double-digits on this news. However, this guidance update may suggest the anticipated earnings rebound next fiscal year will not happen.

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.