Offloading penny stocks to avoid can effectively shield your portfolio from downside risk.
Though the stock market’s been on a breathtaking run of late, with potential interest rate cuts on the horizon, not all investment opportunities are worth wagering on.
With the bullishness in the stock market, it’s perhaps an opportune time to rotate back into penny stocks to buy. However, it is important not to get ahead of ourselves and avoid penny stocks lacking solid fundamentals.
Hence, the current economic optimism needs to be tempered with a more strategic approach prioritizing quality and stability. This cautiousness is imperative in avoiding the pitfalls of high-risk penny stock bets.
That said, here are three penny stocks to avoid. These stocks have a history of high volatility and consistent unprofitability. Moreover, these businesses have struggled to demonstrate financial stability and continue to post hefty losses, making their stock prices prone to major fluctuations.
Penny Stocks To Avoid: Microvision (MVIS)
Once a scanning technology firm, Microvision (NASDAQ:MVIS) shifted to lidar technology during the pandemic in hopes of revitailizing its business.
Four years into its transformation, though, Microvision has barely scratched the surface, failing to make any major inroads with the top automotive players. Consequently, it burns through truckloads of cash each quarter, relying on continuous at-the-market (ATM) offerings to fund operations. On top of that, the lidar space is capital-intensive, demanding colossal investment in research and development.
Hence, without meaningful revenue growth, it’s unlikely that MVIS stock can survive for much longer. It posted a measly $960,000 in sales in its first-quarter (Q1), while posting a whopping $26.3 million in net losses.
Additionally, it utilized $20.8 million in cash during Q1, more than $7 million higher than the prior year. Hence, the financial strain is evident, making it unlikely for the firm to turn things around potentially. As a result, MVIS stock is down an eye-watering 67% year-to-date (YTD) and more than 23% in the past month alone, with no comeback in sight.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) finds itself at a critical juncture as it looks to navigate the topsy-turvy hydrogen fuel cell industry. Its top-line growth is under duress, with the general slowdown in the EV space and diminishing enthusiasm for renewable energy investments. To complicate things further, there’s the issue of the timing of electrolyzer deployments and the inherent seasonality in its niche.
Its recent financial results shed light on its struggles, with sales plummeting 43% year-over-year (YOY) in Q1 from $210.3 million to just $120.3 million. This led to an escalation in net losses to a whopping $295.8 million, or 46 cents per share. Also, its fixed-price hydrogen supply contracts have backfired for the company as rising hydrogen costs force sales at a loss, weighing down its margins.
Despite its best efforts to turn the tide by producing low-cost “green hydrogen,” the company faces a long and winding road to recovery. Hence, its best to avoid PLUG stock at this time.
Skillz (SKLZ)
Skillz is an online gaming platform that took off during the pandemic with its skill-based competitions, offering real-money prizes. However, the post-pandemic scenario has been incredibly harsh for its business. The platform is grappling with rising customer acquisition costs and needs to keep its users engaged. These fundamental problems led to negative revenue growth for the past eight consecutive quarters, with the company surpassing top-line estimates only once during this period.
Q1 was particularly bleak, with a 43.2% YOY drop in net losses to $26.7 million. Even its go-to metric, the average revenue per paying user (ARPPMA), barely budged, inching up just seven cents to $69.8 from the prior-year period. Hence, these numbers underscore the challenges facing Skillz in its efforts to stabilize and grow its business in a competitive market.
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, 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