Most Volatile Penny Stocks

Penny stocks, these days generally encompassing all stocks trading for under $5, are among the riskiest investments available on public markets. While these stocks can produce enormous returns in some cases, it’s also possible for investors to rack up huge losses on them.

Penny stocks are generally quite volatile, making for dramatic price swings that would be very unusual among large-cap companies. Here are some of the most volatile penny stocks in the current market.

Velo3D

Velo3D (NYSE:VLD) is a metal 3D printing company. An early leader in support-free metal 3D printing, Velo3D offers both hardware and software to its customers to facilitate the design and creation of metal parts. The company’s devices have seen early use in the oil and gas industry, where they are used to print large specialty components for extraction equipment.

While the company is an innovator in an extremely promising emerging field, Velo3D’s stock has been highly volatile. On the most recent open market day, shares of VLD tumbled over 13 percent to close at $1.57. This extended a recent losing streak for the company, which has shed over 28 percent of its value in the last month. On a trailing 12-month basis, VLD is down 71.2 percent.

In addition to extreme volatility, Velo3D also suffers from potential overvaluation. The stock currently trades at 3.7 times sales and is expected to lose $0.10 per share in the coming 12 months. While this projected loss is a considerable improvement over the $0.29 per share lost in the trailing 12-month period, it does not bode well for the stock’s performance.

These concerns are not helped by a consistent trend of insider selling. Over the last 12 months, five insiders have sold shares of the company valued at over $315,000. Meanwhile, not one insider has purchased additional shares. This may indicate a lack of management confidence in the long-term future of the company.

A final contributor to Velo3D’s high levels of volatility is a recent debt offering that totals $105 million. The company announced plans to offer $70 million in secured notes earlier this month, with investors having the option to buy a further $35 million at a later date. The offering sat poorly with investors, causing shares to drop nearly 16 percent the day the announcement was made.

Cheetah Net Supply Chain Service

Cheetah Net Supply Chain Service (NASDAQ:CTNT) is a vehicle importer and financial services provider. In addition to its own import activities, Cheetah provides services to small and medium-sized supply chain logistics companies.

In its most recent day of trading, Cheetah lost 10.7 percent of its remaining value. The company, however, has been on a downward slide ever since its IPO on July 31st. The stock’s trading range in the short time since the IPO has run from $2.20 to $6.90, illustrating the extreme levels of volatility that can occur in the immediate aftermath of an initial public offering.

With no quarterly financial data yet published, it’s difficult to arrive at a fair valuation for Cheetah Net Supply Chain Services. Given the market’s initial reaction to the stock, however, it does not seem that investors are expecting staggering growth from the company.

Aurora Innovation

While the volatility of penny stocks can subject investors to large losses on short time frames, it can also have the opposite effect. Aurora Innovation, a self-driving vehicle technology company, gained 9.2 percent on its most recent trading day, rising to $3.45 per share. T

his large single-day increase continued what has been a remarkable run for the young company. The stock has gained 133 percent in the past three months and 185 percent YTD.

Aurora’s main focus is the use of autonomous driving systems to solve labor shortages in the trucking industry. The company has already begun real-world testing in Texas by using its self-driving trucks in conjunction with human drivers for safety controls.

Through partnerships with Uber and FedEx, Aurora is one of the few self-driving truck companies to already be engaged in commercial shipping. If it can successfully automate the driving process, Aurora has the potential to disrupt a massive and economically critical industry.

Although there’s no doubt that investors have done well on Aurora this year, the stock’s remarkable run has also likely pushed it well beyond its fair valuation.

At over 75 times sales, Aurora’s pricing appears to be based on expectations of enormous growth. The company also still has significant profitability problems.

With a return on equity of -45.9 percent, a return on assets of -40.1 percent and total trailing 12-month losses of $1.72 billion, it’s fairly certain that the company won’t be generating positive earnings anytime soon.

Some institutional investors also appear to be heading for the exits while Aurora remains at its current sky-high valuation.

Institutional holders have sold over $253 million worth of the stock in the last 12 months, compared to buying activity of just $164 million. This imbalance was especially prominent in the most recent quarter when selling activity totaled $116 million.

CaliberCos

Last on the list of the most volatile penny stocks at the moment is asset management firm CaliberCos (NASDAQ:CWD). The company invests both directly and through mid-market funds, giving it broad financial exposure.

CaliberCos also provides accounting and real estate development services. The company went public in May, with prices initially rising rapidly as investors scooped up shares at more than double the IPO price.

Today, CaliberCos is yet another case of negative volatility. In addition to losing 8.5 percent of its value on the last trading day, the stock is down 23.6 percent in the last month. This is quite understandable, given the large increase in losses the company reported in its most recent earnings statement.

While revenues rose 9 percent year-over-year, losses per share increased from $0.03 to $0.29. Given that the stock trades at just $1.72, this level of loss per share is a deeply negative sign for long-term investors.

Is Investing In Penny Stocks Worth the Risk?

As you can see, the volatility that accompanies penny stocks can produce both large losses and large gains. In the long run, however, it is generally best for most investors to invest in medium and large-cap stocks that are more stable and predictable.

Companies with many years of earnings reports and solid business models behind them may not be able to double or triple in the course of a single year, but they have a much higher chance of appreciating than tiny companies in their early years.

That isn’t to say, however, that valuable companies can’t trade at low prices. Adjusting for subsequent splits, each current share of Amazon was valued at just $1.50 when the company first went public.

For every one Amazon, though, there are many, many promising penny stock companies that fail to get off the ground. For investors unwilling to take the risk of total or near-total losses, more established companies will likely offer a better risk-reward ratio.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.