We recently compiled a list of the 10 Best Technology Penny Stocks to Invest in Now. In this article, we are going to take a look at where Rekor Systems, Inc. (NASDAQ:REKR) stands against the other technology penny stocks.
According to the U.S. Securities and Exchange Commission (SEC), a penny stock trades for less than $5 per share. Penny stocks are often associated with growing companies with smaller market caps, limited cash flow, and restricted resources. However, it allows the investors to reap benefits from the long-term growth of the company, though these stocks are cheap to invest in they carry a greater risk of loss to the investors.
A higher level of volatility and lower liquidity sets them apart from regular stocks. In other words, higher volatility suggests that investors should expect a drastic change in prices in a given period, resulting in a potential gain or loss. Penny stocks may confuse an investor due to speculations and an inherent uncertainty in gauging its price fluctuation and therefore, these securities are suitable for investors that have a high tolerance for risk.
In addition, a low level of liquidity indicates that these stocks are difficult to sell because there may not be enough potential buyers available. However, not all penny stocks are the same, a diligent investor needs to find stocks that may be undervalued by the market but have the upside potential of growth in the future.
Similarly, there are plenty of good quality penny stocks in the technology sector that are suitable picks for investors looking to invest for long-term growth returns. Before discussing the list, let’s first explore the growth of the technology industry over the past years:
The year 2021 was a memorable one for the tech industry as COVID-19 accelerated digital transformation across enterprises and the demand for remote-work-related hardware and software increased considerably. Moreover, the shortage of semiconductors made headlines as chip manufacturers could not keep up with the surge in demand. The global IT spending grew nearly 10% compared to the previous year.
The technology sector faced challenges in the past two years due to high interest rates, elevated inflation, and considerable macroeconomic and global uncertainties like supply-chain disruptions amid Russia’s invasion of Ukraine. These events contributed to softening of the consumer spending, lowering demand, and reduction in the workforce in 2022. The headwinds continued in 2023 with the downsizing of the labor force and a slight weakening of consumer spending.
Looking forward, economists have assessed a lower risk of recession and tech analysts are optimistic that the tech industry can make a comeback with modest growths in 2024.
Role of Gen-AI in the uplift of the Technology Industry:
Generative AI is a form of machine learning that uses patterns in training data to generate new text, video, images, code, or music that can potentially be indistinguishable from what humans can create. Improvement in transformer-based neural networks in language models has enabled an AI boom in the industry, one such example is Chatgpt.
Companies are integrating AI into their day-to-day operations, and executives across the globe are recognizing the importance of AI in organizing data. According to a forecast by Bloomberg Intelligence, the generative AI market is projected to grow at a CAGR of 42% by 2032 and reach a market size of $1.3 trillion in 2032 from $40 billion in 2022.
Historically, the demand for semiconductors has been largely driven by mobile computing and its use for manufacturing processor chips. However, at present, we witness a novel source in the form of Gen-AI that is accelerating the demand for semiconductors. According to research, the demand for powerful semiconductors could boost the sales of the semiconductor chip industry to $1 trillion by 2030 from $500 billion today.
In addition, the software development service industry is a formidable market with high growth potential for small companies. According to a report by Cognitive Market Research, the global software development service market size was $409.2 billion in 2022 and is projected to grow at a compound annual growth rate of 10.5% from year 2024 to 2031.
Our Methodology:
To compile this list of the 10 best technology penny stocks to invest in, we analyzed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024. To draft this list we filtered tech stocks trading under $5 with a price-target upside of over 30%, and 50 – 70% of shares owned by institutions. We ranked those stocks based on the number of hedge fund holders and then arranged the list based on the ascending order of hedge fund sentiment towards each stock.
Why are we interested in the stocks that hedge funds pile into? 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).
A control room filled with monitors providing situational awareness of the traffic situation.
Rekor Systems, Inc. (NASDAQ:REKR)
Number of Hedge Fund Holders: 16
Rekor Systems, Inc. (NASDAQ:REKR) is an AI-powered roadway intelligence technology company that aims to provide infrastructural solutions to the transportation and urban mobility market keeping in view public safety.
For instance, Rekor One is an AI-based roadway intelligence platform, similarly, Rekor Discover, is an AI technology that provides comprehensive analytics and actionable insights on moving objects across the roadway.
In Q1 2024, Rekor Systems, Inc. (NASDAQ:REKR) reported gross revenue of $9.8 million with a YoY growth of 58%. The revenue growth was driven by the acquisition of All Traffic Data Services (ATD). Revenue attributable to ATD was $2.36 million. In addition, the company completed $26.4 million worth of public offering in February 2024.
ATD portfolio includes; pedestrian studies, radar speed monitoring, traffic counts and turning movements, etc. Rekor founder, Robert Berman emphasized the importance of ATD in a recent press release and stated:
“ATD collaborates closely with numerous traffic engineering firms, metropolitan planning organizations, municipalities, and state departments of transportation, where Rekor currently lacks a sales presence,”
“By uniting two traffic data collection powerhouses, STS and ATD, Rekor is combining decades of traffic engineering and data collection expertise with Rekor’s cutting-edge artificial intelligence and machine learning capabilities,” says Robert A. Berman, Rekor Founder.”
Rekor Systems, Inc. (NASDAQ:REKR) announced a partnership with MS2, a leading provider of Transportation Data Management Systems (TDMS). With an integration of real-time traffic data from Rekor Discover with the cloud-based TDMS, the company will offer new dynamics to real-time traffic data analysis. These developments have boosted the company’s confidence in reaching its $35 million revenue target in 2024.
All these positive developments, a trailing 12-month YoY growth of more than 60%, and analysts’ annual forecast of 46.5% in revenue growth speaks to the bull case for the company.
Although Rekor Systems, Inc. (NASDAQ:REKR) performed well in terms of revenue, the earnings and share price are on the decline. For instance, in its earnings statement for Q1 2024, the company reported a Non-GAAP EPS of $-0.17 and missed the analysts’ earnings expectations by -0.07$. Furthermore, the contract value declined by 35% in Q1 2024, it came down to $7.84 million from $12 million YoY.
Over one year, the share price is down by 43.4% owing to the quarter-over-quarter operating losses, for instance, by the end of the fiscal year 2023, the company posted an operating loss of $45.68 million.
Though the company has grown its revenue over the past few years, it’s yet to be profitable owing to the cost incurred in the acquisition and development of new products in the technology sector.
In Q1, the cost of revenue excluding depreciation and amortization increased by 84% from $2.86 million in Q1 2023 to $5.28 million in Q1 2024 due to the increase in direct costs from hardware procurement to support revenue. In addition, $8,29000 of the cost increase was associated with ATD acquisition.
According to Insider Monkey’s database, 16 hedge funds held stakes in Rekor Systems, Inc. (NASDAQ: REKR) the total holdings are valued at $41.4 million.
Overall REKR ranks 10th on our list of the best technology penny stocks to buy. While we acknowledge the potential of REKR as an investment, 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 an AI stock that is more promising than REKR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.