Penny stocks are polarizing — either you love them, or you hate them. I fall into the former camp. While these micro-cap stocks come with ample risk, the reward potential is unparalleled if you pick the right ones before they catch fire. I’m talking triple-digit returns in some cases. But you need nerves of steel, and the willingness to accept you may lose your entire investment.
If you have the stomach for it, penny stocks can deliver life-changing wealth that makes other assets look lackluster by comparison. Forget gambling, lotteries or even crypto — well-selected penny stocks with solid underlying businesses are your ticket to outsized returns. The key is finding those diamonds in the rough before Wall Street notices. Get in early, and you can ride the wave. Let’s start with these seven:
LuxUrban Hotels (LUXH)
Despite some recent trouble with lawsuits and lease disputes, I’m quite bullish on LuxUrban Hotels (NASDAQ:LUXH) at these levels. This hotel operator saw its stock price sliced in half in early 2024 after a critical report alleged that it failed to sign a high-profile lease and hid pertinent lawsuit details. No doubt its concerning, but let’s contextualize this collapse with a broader lens.
Revenue still grew 170% in Q3 to $39.2 million as LuxUrban continues expanding its tech-powered budget hotel footprint in major cities. Net income hit almost $5 million, representing a healthy 16% net margin. The core business is thriving. As Bleeker Street Research noted, LuxUrban allegedly never signed a lease nor provided a letter of credit for the coveted Royalton Hotel. But it has dozens of other properties humming along nicely.
The report sparked an ugly sell-off, with shares plunging to $2.93 as of writing on huge volume. But I believe Mr. Market overreacted. LuxUrban may have overpromised on the Royalton, but this single setback hardly justifies halving its market cap when revenues are still surging. The lawsuits clearly matter, but likely not enough to materially impact long-term profitability.
With shares beaten down and fundamentals still strong, I’m pounding the table on LUXH. Analysts see revenues hitting $414 million in 2025, up over 240% from $120 million in 2023. More impressively, they forecast EPS soaring to $1.36 in 2025. That’s just a 2 P/E multiple on current prices despite 170% revenue growth last quarter! The legal issues create risk, but the reward potential seems vastly greater at these depressed levels.
Creative Realities (CREX)
Creative Realities (NASDAQ:CREX) is another explosive penny stock with intriguing upside as its digital signage solutions gain traction across verticals like retail, healthcare and auto showrooms. This microcap shed 54% from July 2023 before rebounding 154% into 2024 on strengthening fundamentals. Revenue is expected to nearly double from 2023 to 2025, and I believe CREX offers substantial additional upside from its current $3.56 per share price.
Q3 saw $11.6 million in quarterly revenue. With a slew of big contract wins recently, CREX seems poised to unlock significantly higher profitability as revenues scale. Management targets $60-$80 million in 2024 sales, which could drive EBITDA between $8 million and $12 million.
With just a $37 million market cap currently, CREX trades at approximately 4x 2024 EBITDA, assuming $10 million in EBITDA. Hitting the higher end of guidance at $80 million would drop this multiple to around 3x Doubles or even triples from today’s price seem plausible if the demand for digital signage persists.
Even if macro headwinds slowed growth, I believe CREX’s existing contracts and deliveries would support at least $60 million in revenue. That base case still points to profits and positive cash flow. So, I believe the risk-reward is strongly skewed to the upside right now. This hot penny stock could make investors a fortune if execution continues.
ThredUp (TDUP)
ThredUp (NASDAQ:TDUP) operates a fast-growing online resale platform for secondhand apparel and accessories, promoting sustainable fashion while offering steep discounts. This innovative model aligns perfectly with today’s inflationary climate, where value matters more than ever. TDUP collapsed in 2021/2022 but has rebounded nearly 100% off its lows as the business shows resilience.
Despite economic uncertainty, ThredUp grew Q3 revenue by 21% YOY. More importantly, a path to profitability is emerging behind the scenes. TDUP has $74 million of cash to fund operations, which, by my estimates, can last at least two more years before requiring additional capital. Breaching EBITDA positive in that timeframe seems achievable.
Wall Street remains skeptical of the resale model, but I expect TDUP to surprise analysts thanks to the current consumer backdrop. With household budgets stretched thin, buying quality secondhand goods at up to 90% off makes perfect sense. This trend should continue driving online resale adoption long after inflation moderates.
TDUP is definitely an intriguing penny stock with multiple positive catalysts in 2024. The market opportunity is vast, and the business model is time-tested. Yet shares trade at just 0.7x estimated 2023 revenues, signaling the negativity is overdone. With a clear path to profitability ahead, now looks like an opportune time to take a starter position in TDUP before sentiment improves.
SuRo Capital (SSSS)
SuRo Capital (NASDAQ:SSSS) offers exposure to high-upside, yet risky private technology companies like Palantir (NYSE:PLTR), Nextdoor (NYSE:KIND) and Opendoor (NASDAQ:OPEN). After surging during the pandemic boom, SSSS has recently plunged 80% off its $16 peak to trade sideways around $4. But with growth names bouncing back in 2024, I expect SuRo’s underlying portfolio gains to ignite a rally in the stock.
Trading at a huge 52% discount to its $8.41 Q3 net asset value (NAV) per share, SSSS appears significantly undervalued at current levels. The NAV expanded by $1.06 last quarter as well, showcasing the embedded value in Suro’s holdings that isn’t reflected in its deflated share price. As the Fed pivots dovish and potentially cuts rates in 2024, tech valuations could swing higher to close this gap.
SSSS represents a unique opportunity to access emerging tech giants on the cheap before market sentiment improves. The company also began executing on share repurchases last quarter to capitalize on the disconnect. With exciting portfolio companies and an expanding NAV, 2024 could witness an explosive rebound toward fair value.
Tomi Environmental Solutions (TOMZ)
Tomi Environmental (NASDAQ:TOMZ) provides essential disinfection and decontamination solutions to healthcare, food production and other commercial customers using its proprietary hydrogen peroxide-based SteraMist technology. While Covid-19-driven demand has slowed, TOMZ appears significantly undervalued relative to its long-term profit potential.
Shares languish over 94% off peak. But with revenue growth resuming and profits likely in 2024, the market is ignoring Tomi’s future prospects. Analysts forecast a 25% annual EPS expansion this decade, from $0.06 in 2024 to $0.74 by 2032. Even using conservative 2025 estimates, TOMZ trades at just 4x forward earnings despite 109% sales growth expected next year.
As post-pandemic headwinds turn to tailwinds, Tomi’s innovative disinfection solutions should witness renewed adoption. Its Binary Ionization Technology produces a superior sterilization fog with widespread applications across industries. At current prices, TOMZ offers substantial upside with minimal downside risk. This is a compelling penny stock to grab before sentiment improves.
Applied Digital (APLD)
Riding the confluence of crypto mining and AI, Applied Digital (NASDAQ:APLD) shows immense growth potential as it provides infrastructure solutions to both high-upside industries. Revenue already jumped 242% annually to $42 million in its fiscal Q3 2023 report.
While crypto mining drives current sales, I expect Applied Digital’s AI infrastructure revenue to boom over the coming years as text-to-video, chatbot and other models enjoy surging enterprise adoption. The company also benefits from crypto’s resurgence in 2024, especially if the Fed pivots dovish. Forecasts call for quarterly revenue to reach $211 million by 2026.
Trading at just 2.5x FY2024 sales amid triple-digit top-line expansion, APLD offers explosive upside if execution continues. The stock appears forgotten by the market, but not for long. With catalysts mounting and growth accelerating, Applied Digital makes for a compelling penny stock pick before it catches fire.
Heritage Global (HGBL)
Heritage Global (NASDAQ:HGBL) operates an asset services marketplace focused on financial, industrial and healthcare-related distressed and surplus assets. This includes acquisition, disposition, valuation and lending services across sectors. Despite macroeconomic uncertainty, business momentum and financial results remain strong.
Q3 net operating income hit $2.8 million, while adjusted EBITDA reached $3.1 million over the same period. HGBL also continues building out its lending pipeline, with its loan book expanding by $6 million sequentially. The balance sheet appears rock solid, too, with over $56 million in stockholder equity and $13.8 million in working capital as of Q3.
In the long term, Heritage Global has rewarded shareholders nicely with a 480% five-year return. With strong profitability likely resuming in 2024 per analyst forecasts, HGBL appears attractively priced at just 9x forward 2024 earnings.
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Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Omor Ibne Ehsan 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.
