Two Stocks Trading Under A Dollar Worth Checking Out

penny stocks

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This article is for investors looking for opportunities to maximize their returns.

When it comes to investing, you can either identify individual stocks or buy ETFs and diversify your risks. Most investors are on the lookout for stocks that are undervalued, cheap, and trading at a bargain.  While you will have to set aside at least $3,200 to buy one share of Amazon, penny stocks provide investors with an opportunity to buy several shares with significantly less capital.

Penny Stock Unique Risks and Rewards

Generally, companies that have a stock price of less than $5 are defined as a penny stock.  These companies are small when it comes to market cap, typically because they have low earnings.  Penny stocks are often highly volatile, with wide swings in share prices. They are also usually thinly traded, with few shares outstanding on OTC markets for buyers and sellers to trade.  Typically speaking, penny stocks are often subject to scam promotions.  In addition, penny stock companies are usually cash flow constrained and typically seek to issue more shares meaning that penny stock investors are often at heightened risk for share dilution.

While penny stocks are typically riskier, their often low market capitalization does mean that motivated outside investors could potentially take a controlling interest in the company – or could have a direct influence on the actions of company management.

However, penny stocks are also companies that are unproven,or have poor earnings and are priced cheaply for this very reason. Investors should note that while penny stocks carry certain risks, they remain attractive due to the opportunity to derive high rewards from these investments.

In any event, investors should exercise due diligence.  Typically by interviewing company staff, reading SEC forms, evaluating market conditions and by evaluating company financial statements.

For all you opportunity hunters, in this article, we look at two penny stocks that you can buy right now and are priced below $1.

Exela Technologies

Exela Technologies is a company in the BPA (business process automation) space. It provides digital transformation solutions that aim to enhance the quality, productivity, and end-user experience of enterprises.

Exela enables the automation of bills and payments by providing related products and services. According to the company’s presentation, it has 60% of the Fortune 100 companies as clients and a customer base of over 4,000.

Exela generates 83% of its sales from the U.S., 15% from Europe, and 2% from other regions. Its revenue mix is well diversified with the banking & financial services sector accounting for 26% of sales, followed by healthcare, commercial, and insurance at 24%, 20%, and 11% respectively.

Its top 10 customers generate 35% of revenue while the next 80 customers generate 25% of revenue. In the third quarter of 2020, Exela reported sales of $305.3 million, down 18.3% year-over-year compared with revenue of $373.5 million in the prior-year period.

Exela attributed the revenue decline to reduced customer volumes due to COVID-19 and the exit of contracts from certain clients. However, Exela claimed that these contracts are non-recurring and not a strategic fit for the company’s long-term margins.

Its gross profit margin rose by 240 basis points year-over-year to 23.3%. The company’s adjusted EBITDA stood at $48.7 million compared with $60.5 million in the prior-year period.

Exela’s operating income in Q3 stood at $4.8 million compared to an operating loss of $93.9 million in Q3 of 2019. This year-over-year increase was driven by an improvement in gross margin, lower selling, general and administrative expenses, and lower depreciation and amortization expenses. Investors should note that Exela reported a non-cash goodwill impairment charge of $97.2 million in Q3 of 2019.

Exela stock is priced at $0.40, valuing it at a market cap of $59.3 million. It’s trading at a cheap valuation with a forward price to sales multiple of just 0.04. While company sales are estimated to decline by 16.2% to $1.31 billion in 2020 it is forecast to rise by 11.2% to $1.46 billion, according to analysts from Yahoo Finance.

One of the reasons why the stock is trading at a low multiple is due to its losses that stood at $3.53 per share in 2019. This figure is forecast to narrow to a loss of $0.81 in 2020 and $0.48 in 2021.

Their website is here.

Adomani Inc.

The second penny stock is Adomani, a company that provides zero-emission electric and hybrid drivetrain systems for the integration in school buses and heavy-duty commercial fleet vehicles.

Adomani’s products include traction generator and motor controller as well as power flow setup for direct-drive configuration- a single-speed gearbox or a multi-gear ration transmission system. Adomani also offers lithium-ion battery packs, inverters, chargers, and electrically driven systems.

Electric Vehicle (EVs) stocks have been on an absolute tear in 2020. Shares of giants such as Tesla and NIO have soared 665% and 1,008% respectively year-to-date. Comparatively, shares of Adomani are up 190% this year.

The upcoming decade will see the world shift towards EVs and this transition will be a key revenue driver for Adomani and peers.

In Q3, the company reported sales of $164,000 which were significantly lower than the $5.7 million figure in the prior-year period. Adomani said sales in Q3 were severely impacted by COVID-19 restrictions and administrative delays as well as lack of access to HVIP (Hybrid and zero-emission truck and bus voucher incentive project) funds.

Adomani stock is priced at $0.50 indicating a market cap of $37.5 million. While sales are forecast to decline by 92% to $980,000 in 2020 it’s expected to rise by 514% to $6 million in 2021.

Adomani’s website is here.

The Verdict

Both Exela and Adomani have multiple revenue drivers as we inch closer to the end of 2020. Similar to most other penny stocks investors should brace for volatility given the macro-economic uncertainties that will impact several sectors in the near-term.

However, as with any investment opportunities the old watchword “buyer beware” should be first in your mind.  Do your due diligence!

Further Reading

For more great All Things Finance investing articles, read these:

IPO 101, what does IPO stand for, and can you invest in one?

Famed investor Mahapabrai’s investing checklist

Never lose money in the stock market

Image source: Depositphotos.

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