3 Popular Penny Stocks Robinhood Investors Are Buying
May 20 2021 - 6:37AM
Finscreener.org
Investing in penny stocks might seem an attractive strategy to
generate exponential gains. However, investors should realize that
purchasing penny stocks carry significant risks due to the volatile
nature of these instruments and the lack of visibility in some
cases. Further, just because a stock has a low share price does not
mean it cheap.
You need to analyze each stock carefully before you make an
investment decision. The due diligence process is even more
important if you want to build a penny stock
portfolio. Penny stocks are some of the most widely traded
companies by Robinhood investors as they are viewed as an
instrument that can derive outsized returns. Here, we take a look
at three popular penny stocks that Robinhood investors are
buying.
OrganiGram Holdings
The first penny stock on the list is OrganiGram
Holdings (NASDAQ: OGI).
Shares of this Canadian cannabis giant are trading at $2.62
indicating a market cap of $783 million. OGI stock is down 68% from
record highs despite gaining over 100% year to date.
In the second quarter of fiscal 2021 (ended in February),
OrganiGram’s net revenue was down 37% year over year at CA$14.64
million. This decline can be attributed to lower pot prices, as
well as lower wholesale revenue.
OGI reported a gross profit of a negative CA$17.19 million
compared to a gain of CA$11.28 million in the prior-year period. A
negative gross margin was due to inventory write-downs and
oversupply issues.
In fiscal Q2, OrganiGram sold 3,688 kgs of dried cannabis a
decline of 10% year over year. The company can produce around
76,000 kgs of cannabis annually and we can see it grappling with
lower than expected demand. This in turn has led to lower cannabis
prices and falling profit margins. OGI in fact reported a net loss
of CA$66.39 million in Q2 which was 4.5x its sales.
However, there are a few things going right for OrganiGram. It
acquired the Edibles & Infusions Corporation, a hugely popular
brand in Canada’s cannabis edibles market. Further, British
American Tobacco also
purchased a 19.9% stake in OGI that will help the latter
improve its liquidity position and focus on accretive acquisitions
going ahead.
Nokia
A large-cap penny stock on my list is Nokia
(NYSE:
NOK). In the March quarter, Nokia’s net sales were up 3% year
over year. After excluding foreign exchange fluctuation, sales grew
9% to $6.2 billion. Nokia experienced strong enterprise sales and
customer additions allowed it to increase revenue by 14% year over
year in this business.
The growth in revenue also helped the telecom giant improve
profit margins due to its shift towards high margin 5G products and
cost efficiencies. The company’s gross margin rose 260 basis points
to 37.9% while the operating margin stood at 8.5%. In Q1 of 2020,
Nokia reported a negative operating margin of 1.5%. Its net income
was up 11x at $455 million much higher than analyst estimates of
$109 million.
In 2021, Nokia’s management has forecast sales between $25
billion and $26.4 billion, and its operating margin is estimated
between 7% and 10%. Nokia stock is trading at $4.94 and has gained
28% in 2021. However, in the last five years, it has generated
returns of just 10% and in the last 10-years, the returns are an
abysmal -21.3%.
Sundial Growers
Another Canadian pot stock that makes the penny stock list is
Sundial Growers (NASDAQ: SNDL).
There are several reasons why Canadian marijuana companies
including Sundial have grossly underperformed the broader markets
or their peers south of the border. These include high inventory
levels, negative profit margins, and a thriving black market among
many others.
Sundial stock is trading at $0.72 per share which is 94%
below its record highs. The company recently reported its Q1
results and reported a negative gross profit of CA$3.45 million.
Even if we account for inventory write-downs the gross margin was
still negative in Q1 due to price pressures. Sundial confirmed it
is reducing its product portfolio to focus on higher-margin
ones.
Sundial reported an adjusted EBITDA profit of CA$3.3 million but
its net loss stood at CA$134.4 million. In the prior-year period,
its EBITDA loss was CA$5.6 million. The company managed to reduce
its operating expenses to CA$8.1 million in Q1 compared to CA$8.8
million in Q4. Its selling general and administrative costs also
fell by 35% compared to the prior-year period.
In case Sundial can increase profit margins and race to
profitability in the upcoming quarters the stock might gain
momentum and end the year at a higher price.
Sundial Growers (NASDAQ:SNDL)
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