In this article, we will look at the 8 Most Undervalued Penny Stocks To Buy According To Analysts.
What Does the Stock Market Look Like for Small Cap Stocks?
Analysts have been bullish on small-cap stocks and their potential to outperform large caps in a slowing economy. However, the current environment is presenting some choppiness due to elections being just around the corner, thereby demanding some caution from investors.
To talk about what the stock market looks like today and in the near future. Tom Lee, co-founder of Fundstrat Global Advisors joined CNBC in a recent interview. He has been one of the strong proponents and supporters of small-cap stocks. Lee says that we are in a volatile environment currently, due to a few reasons, one being the elections in less than 30 days, the second being the Middle Eastern crisis which is scaring investors, and lastly the port strike that has the potential to cripple the economy. However, he still expressed his optimism that the year-end has a lot of tailwinds and investors shouldn’t be afraid to buy the dip. Moreover, Lee also highlighted that these current events are all short-term headwinds in a buying cycle and are expected to die down quickly.
Lee thinks that bottoms are tough and processed, and small caps are in the process of what could be a multi-year bottom. Therefore the conviction is that some people might want to buy the big names on NASDAQ and the AI market, however, with small caps trading at lower multiples of P/E less than 10, the risk and reward lie in small caps. Lee further mentioned that interest rate cuts and better earnings growth make the path for small-cap growth more visible.
Tom Lee has also reaffirmed his belief that the S&P 500 could close above 5,700 by year-end, supported by strong economic fundamentals and a dovish Federal Reserve beginning to cut interest rates. He noted that significant cash reserves are available for investment, which could drive stock prices higher in the next three to twelve months.
In addition to this, another important news highlight has been regarding the jobs report, which has shown par expectation results. We recently covered the 8 Most Undervalued Growth Stocks To Buy According To Wall Street Analysts, here’s a short excerpt from the article:
“Analysts and the market blamed the Fed for not cutting the interest rate earlier in July. However, the sentiments seemed to have shifted with the recent jobs report with above-expectation data. The data from the Job market shows that Nonfarm payrolls increased by 254,000 in September and unemployment rates fell to 4.1% from 4.2%.
These new statistics are making the market think, was the 50 basis point too much another question that comes up is what the Fed will do in the next meeting. Sylvia Jablonski, Defiance ETFs CEO and CIO joined CNBC to discuss the issue recently. She mentioned that the Fed is data dependent and every move they make is based on the latest available data. The market was questioning the Fed for the delay in rate cuts, however, the data that the Fed had at the time was pointing towards the job market going the other way. Jablonski thinks that they made the right call to cut the interest rates by 50 basis points. However, with the current jobs market report it is difficult to expect another 50 basis point cut. She thinks that it will either be by a 25 basis point cut or no cut at all.
As of now the market seems to be doing good, the job numbers came in above expectations, and wages are good which tells that the consumers are likely to spend more which will be feasible for the economy. Jablonski also mentioned that the S&P 500 has been up by 20% in 2024 and thinks that the earnings for stocks are strong.”
With that let’s talk about the 8 most undervalued penny stocks to buy according to analysts.
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Our Methodology
To curate the list of the 8 most undervalued penny stocks to buy according to analysts we first defined a criteria. We defined penny stocks to be the ones trading under the price tag of $5 and called a stock cheap if it is trading at a forward P/E lower than the market average of 24.35 (the market’s P/E ratio as per Wall Street Journal) with earnings expected to grow during the year.
To get our stocks we used the Finviz screener and used the aforementioned criteria. Once an aggregated list was ready, then we ranked the stocks based on analyst upside potential sourced from CNN. Please note that the figures are as of October 9, 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Most Undervalued Penny Stocks To Buy According To Analysts
8. Expensify, Inc. (NASDAQ:EXFY)
Share Price: $1.82
Forward P/E: 8.29
Earnings Growth: 2300.00%
Number of Hedge Fund Holders: 17
Analyst Upside: 37.36%
Expensify, Inc. (NASDAQ:EXFY) is an online expense reporting and management service company. It operates through a cloud-based expense management software that helps businesses manage their financial transactions.
Some of the key features of the platform include SmartScanning, Guaranteed eReceipts, receipt forwarding, and receipt apps and partners. Users can simply scan the receipts from flights or hotels using a mobile app and the app automatically captures and records important information from the receipts. Moreover, its expense-tracking software allows individuals and organizations to track day-to-day expenses.
One of the key features that set the platform apart is its ability to integrate with other accounting software including QuickBooks and Xero for seamless financial management.
The total addressable market for the company still remains untapped. There are around 1.3 billion users in the very small businesses and small business segments. Management has plans to capture 99% of this market in the fiscal 2025. Moreover, it is also ready to initiate its viral bottom up word of mouth strategy to publicize its platform within its addressable market. Lastly, it will also improve its margins with monthly subscriptions.
During the second quarter of 2024, the total revenue of Expensify, Inc. (NASDAQ:EXFY) reached $33.3 million with average paid users standing at 684,000. Moreover, the company also generated $5.7 million in free cash flow. The platform also provides employee reimbursement services which earn significant interchange when employees file a card payment from their platform. The quarterly interchange was $4.0 million a 48% improvement year-over-year. It is one of the most undervalued penny stocks to buy according to analysts.
Here is what Baron Fintech Fund has to say about Expensify, Inc. (NASDAQ:EXFY) in its Q2 2022 investor letter:
“Shares of Expensify, Inc., an expense management software provider for businesses, contributed to performance. The company reported strong quarterly earnings, expressed confidence in the business outlook, and initiated a share repurchase authorization. High-growth software stocks have recently been out of favor, but we retain long-term conviction in Expensify due to its large addressable market, rapid pace of innovation, and impressive combination of growth and profitability.”
7. Babcock & Wilcox Enterprises, Inc. (NYSE:BW)
Share Price: $2.45
Forward P/E: 15.5
Earnings Growth: 115.20%
Number of Hedge Fund Holders: 19
Analyst Upside: 73.47%
Babcock & Wilcox Enterprises, Inc. (NYSE:BW) is a leading technology provider in the renewable energy and environment industry. It mainly focuses on developing technologies that help generate power and heat in an environmentally friendly manner.
Some of the key technologies of the company include waste to energy, biomass to energy, and black liquor systems that are designed for the pulp and paper industry to recover energy from waste products.
Since its inception in 1867 when it only had a single patent, Babcock & Wilcox Enterprises, Inc. (NYSE:BW) has gone on to expand its portfolio of efficient boilers and other systems to 17,000 patents.
The second quarter of 2024 was driven by a strong operating performance for the company. Although the revenue of $233.6 million was lower compared to the same quarter last year, it was still above analyst expectations. Moreover, the net income of $25.4 million and operating income of $42.2 million also exceeded expectations.
The year-over-year decrease in revenue was already anticipated due to its strategic shift away from lower-margin new-build projects and the timing of a large U.S. construction project. What’s impressive about this undervalued penny stock is its year-to-date bookings of $383.1 million and implied bookings of $668.5 million, a 71% increase compared to the first half of 2023.
Moreover, the management has also reiterated full-year guidance Adjusted EBITDA target range of $105.0 million to $115.0 million, excluding BrightLoop and ClimateBright expenses.
6. Olo Inc. (NYSE:OLO)
Share Price: $4.70
Forward P/E: 22.63
Earnings Growth: 33.30%
Number of Hedge Fund Holders: 21
Analyst Upside: 80.85%
Olo Inc. (NYSE:OLO) is a technology company that helps restaurants manage their online ordering and payment processing. It operates a leading open SaaS platform with a reach of more than 700 brands, and 82,000 restaurants, and processes more than 2 million orders per day.
Its platform offerings are divided into three main areas including order, pay, and engage, which allows restaurants to manage both on-premise and off-premise operations. During the second quarter of 2024 CEO and founder, Noah Glass announced another POS integration partnership for Olo Pay and Engage, which will move the company a step closer to becoming a full-stack payment processing and data aggregation company.
The second quarter revenue of Olo Inc. (NYSE:OLO) grew 28% year-over-year to $70.5 million. The growth was driven by a strong platform revenue which came in at $69.6 million after improving 27% during the same time. The operational efficiency of the company can be estimated by its growing Average revenue per unit which grew 19% year-over-year to reach $852. Management continues to add new locations to its business and ended the quarter with 1,000 new locations.
Conestoga Capital Advisors Micro Cap Strategy stated the following regarding Olo Inc. (NYSE:OLO) in its fourth quarter 2023 investor letter:
“Olo Inc. (NYSE:OLO): OLO is a SaaS technology platform that enables its greater than 600 restaurant brand customers to reach their customers across over 77,000 locations. OLO reported third quarter results ahead of expectations and nudged full year guidance higher, however, they also announced Wingstop would no longer be a customer. Wingstop had 1,800 locations on the OLO platform and contributed nearly 2-3% of revenue. OLO recovered later in the quarter as the company announced Waffle House, operator of 2,000 restaurants, would join the OLO platform and adopt multiple products.”
5. Lantronix, Inc. (NASDAQ:LTRX)
Share Price: $3.75
Forward P/E: 8.16
Earnings Growth: 17.50%
Number of Hedge Fund Holders: 13
Analyst Upside: 86.67%
Lantronix, Inc. (NASDAQ:LTRX) is an international IoT connectivity company that enables connectivity and computing across various industries, such as smart cities, automotive, and enterprise sectors.
They create small, integrated devices (like Compute System-on-Modules) that can be embedded into other products to add connectivity and processing power. It also provides systems that function as routers, switches, or gateways. These systems help manage data traffic and connect various devices efficiently.
The technologies of Lantronix, Inc. (NASDAQ:LTRX) are utilized in high-growth industries including smart cities, Automotive, and Enterprise. The company recently joined Qualcomm Automotive Solutions Ecosystem Program, an initiative aimed at accelerating innovation in the automotive sector. The partnership will allow the company to leverage Qualcomm’s resources and expertise to develop customized automotive solutions. Management has announced plans to showcase its Percepxion Edge AI Solution at an upcoming Qualcomm event, highlighting its integration with the Qualcomm AI Hub. The partnership highlights the prospects of Lantronix, Inc. (NASDAQ:LTRX) being used in high-growth industries such as autonomous driving vehicles.
Moreover, its FQ4 of 2024 was a record quarter in terms of revenue. The company generated $49.1 million, up 41% year-over-year. The full year 2024 was also a success as the company achieved a revenue of $160.3 million, a 22% growth year-over-year.
Revenue was not the only indicator that went up, annual net income of the company also improved by 22% from the previous year to reach $160.3 Million. This indicates a profitable business model for Lantronix, Inc. (NASDAQ:LTRX) investors.
180 Degree Capital Corp stated the following regarding Lantronix, Inc. (NASDAQ:LTRX) in its Q2 2024 investor letter:
“More recently, we have been working behind the scenes with the management and board of Lantronix, Inc. (NASDAQ:LTRX) on ways to solidify the strong foundation of the company and set it up for success and significant value creation for stockholders in the future. We believe LTRX’s new CEO, Saleel Awsare brings an interesting and successful background to LTRX. What we believe he needed to be in the best position for success were board members who have experience navigating the challenges unique to microcapitalization companies. Following multiple discussions, we introduced Saleel and his board to Narbeh Derhacobian, the former Chief Executive Officer and founder of our former portfolio company, Adesto Technologies, Inc., and one of Adesto’s board members, Kevin Palatnik, who has significant experience as a CFO at multiple related businesses. We were pleased to see that LTRX’s board saw the same value that we do in these individuals, in terms of helping Saleel and his team to have the best opportunities to achieve multiple catalysts that could lead to material increases in value for LTRX and its stockholders.”
4. Ribbon Communications Inc. (NASDAQ:RBBN)
Share Price: $3.20
Forward P/E: 13.38
Earnings Growth: 14.30%
Number of Hedge Fund Holders: 13
Analyst Upside: 87.50%
Ribbon Communications Inc. (NASDAQ:RBBN) is a technology company that specializes in communication systems. They create software and hardware that help companies make voice calls and send data securely. Moreover, the company also provides network solutions. Its key segments include Cloud and Edge Solutions, which deal with Voice over Internet Protocol, and IP Optical Networks which deal with high-performance networking solutions that manage large amounts of data traffic.
Although the revenue of Ribbon Communications Inc. (NASDAQ:RBBN) was down around 8.5% year-over-year at $193 million, its gross margins were up 2% during the same time. This is not the key highlight for the company. The main point of attraction is its multi-year partnership with Verizon, where the company will help Verizon replace outdated call-routing and networking systems using its cloud-based solutions. The partnership will add $300 million in sales for the company during the next 3 years. This will be a major improvement for a company like Ribbon Communications Inc. (NASDAQ:RBBN), whose annual revenue stands at less than $820 million.
RBBN is cheap at current levels with a forward price-to-earnings ratio of 13 and analysts expect its earnings to grow by 14%. It ranks as the 4th most undervalued penny stock to buy according to analysts.
3. AerSale Corporation (NASDAQ:ASLE)
Share Price: $4.88
Forward P/E: 17.28
Earnings Growth: 1300.00%
Number of Hedge Fund Holders: 16
Analyst Upside: 104.92%
AerSale Corporation (NASDAQ:ASLE) is a leading player in the aviation industry that specializes in aftermarket services for commercial aircraft and engines. The services provided by the company include the sale and lease of aircraft and engines, as well as maintenance, repair, and overhaul (MRO) services. It serves commercial airlines, airplane manufacturers, and government contractors.
Although the main operation of the company concerns buying and selling used airplanes, however, it has gained significant importance due to its AerAware technology which enables better vision in older cockpits.
AerSale Corporation (NASDAQ:ASLE) has not yet been able to find an initial order for the technology but it is in talks with 4 potential clients. It is anticipated that once the management finds some clients for its technology it will result in high-margin revenues for the company.
Management has been investing in its maintenance operations as they know that the sales business is volatile. Its second quarter revenue was $77.1 million up from $69.3 million from the previous quarter. It sold 5 engines compared to 4 engines the previous year during the second quarter. Bullish analysts vouch for its maintenance and spare part business which is here to stay for a longer term, making AerSale Corporation (NASDAQ:ASLE) one of the most undervalued penny stocks to buy according to analysts.
2. Torrid Holdings Inc. (NYSE:CURV)
Share Price: $3.30
Forward P/E: 17.1
Earnings Growth: 63.60%
Number of Hedge Fund Holders: 3
Analyst Upside: 112.12%
Torrid Holdings Inc. (NYSE:CURV) is a retail company that designs and sells plus-size clothing for women. Its products are designed specifically for sizes 10 to 30. Its products range from tops, bottoms, dresses, activewear, intimates, and accessories. It sells products through both online and 655 physical stores spread across the United States, Canada, and Puerto Rico.
Much like other apparel companies Torrid Holdings Inc. (NYSE:CURV) is also facing difficulty from a challenging consumer environment. However, management scaled down its markdowns to lift its profit margins during the most recent quarter. In the second quarter, comparable sales were down by 0.8% however, the full-price comparable sales were up 6.4%.
The company was able to successfully cut its inventory levels by 19% leading to a 323 basis points improvement in margins. Management expects its sales to return to positive single digits during the second half of 2024.
Argosy Investors made the following comment about Torrid Holdings Inc. (NYSE:CURV) in its second quarter 2023 investor letter:
“During the quarter, I did mostly housekeeping, selling a couple of smaller positions in Torrid Holdings Inc. (NYSE:CURV) and Ollie’s Bargain Outlet. First, Torrid Holdings was never a large position, but it performed horribly during my ownership of the position. Body positivity, as it turns out, was not a positive development for Torrid. Long operating somewhat alone in the plus size women’s apparel (that women actually want to wear) category, COVID and the advent of stars such as musical artist Lizzo shined a light on women who did not fit the traditional definition of beauty. As a result, every retailer from Victoria’s Secret to Sephora has embraced body positivity, featuring plus size models in their marketing content and making clothes for larger people. Torrid lost its differentiated position in the market, and I believe has been struggling to remain relevant when plus size women have so many more options than they used to. In any event, this women’s fashion has never been something I considered myself an expert in, so perhaps I should be a little more cautious next time I venture into this quixotic realm.”
1. Emeren Group Ltd (NYSE:SOL)
Share Price: $2.64
Forward P/E: 8.19
Earnings Growth: 306.20%
Number of Hedge Fund Holders: 6
Analyst Upside: 127.27%
Emeren Group Ltd (NYSE:SOL) is an energy company that focuses on developing solar power storage systems. The company has a diverse portfolio of 245MW of photovoltaic (PV) systems and overall storage systems of 15 MWh. It operates as an Independent Power Producer.
Management has been shifting its focus to high-growth and less competitive European markets. It is particularly focused on the construction of storage systems which are in high demand in major European countries including Germany, Italy, and France among others.
Although the overall revenue of the company was down 11% year-over-year mainly affected by the difficult market conditions, Emeren Group Ltd (NYSE:SOL) was still able to pull off some positive highlights during the second quarter.
It secured over 2 GW of projects with $60M in revenue, with $8.2M DSA revenue in H1, which is more than a full year DSA for 2023. Management also finalized the 394 MW BESS DSA with PLT in Italy. The IPP contributed more than 30% to the total revenue of the company with strong growth coming from both China and Europe.
Although the market has been tough the healthy pipeline of the company shows that it is in for some lofty growth moving forward. Moreover, its cheap valuation also makes it attractive to buy at current levels.
While we acknowledge the potential of Emeren Group Ltd (NYSE:SOL) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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