We recently compiled a list of 8 High Growth Penny Stocks That Are Profitable in 2024. In this article, we will look at where Sono-Tek Corporation (NASDAQ:SOTK)) ranks among high-growth penny stocks that are profitable in 2024.

Do Small Cap Stocks Offer More Value?

Many investors and analysts are concerned regarding the valuations of large-cap stocks and there is a growing concern that maybe the turn is coming for small and mid-cap stocks.

Brent Schutte, Chief Investment Officer of Northwestern Mutual Wealth Management Company joined CNBC to discuss how small caps offer more value. Schutte mentioned the 1999 and 2000 markets which were very similar to the current market. During that time the market became very narrow, he thinks that the current market is barely holding up. To explain his point he mentioned the manufacturing market and the lower and middle income consumers have been harmed by the interest rate hike over the past years. Schutte does not see the Fed being able to alleviate the suffering market and what consumers have been through and believes that how the economy will perform in the future remains an unanswered question.

For investors who are more interested in returns over a 3 to 5-year period, small-cap stocks regardless of a soft landing or not, offer value as these stocks are priced for recessions. On days when interest rates rise, large cap stocks, particularly those in the S&P 500, tend to perform better while small-cap stocks often decline. However, Schutte argued that there is a debate about how much of the current economic situation is already reflected in stock prices. He thinks optimism is a contrarian indicator, meaning when many believe stocks will rise, it could signal a downturn. He suggests that as investors the strategy of investment should be towards undervalued stocks where optimism is low, suggesting that this approach may yield better returns as conditions change and currently small caps are undervalued indicating better returns.

On the other hand, Tom Lee, managing partner and head of research at Fundstrat Global Advisors, who has been backing up the small-cap bull case thesis, thinks that there is a lot of firepower supporting stocks post-elections.

He recently joined CNBC in another interview expressing his caution before the election period but optimism as soon as the new president takes charge. He noted that many investors are sitting on the sidelines until they have clarity on the presidential outcome and mentioned that he advises his clients to buy the dip as he expects potential market recovery post-election.

Lee believes that once the election is behind us, there is significant “firepower” supporting stocks. He expects a decent rally, with a target for the S&P 500 around 6,000. He thinks this because of a dovish Federal Reserve and a healthy economy. Unlike Schutte, Lee does not foresee a recession in the near term. He however does acknowledge concerns about stock valuations being stretched, particularly with the S&P 500 trading above its historical average. He argued that this is misleading due to the higher multiples of top-performing stocks.

Lee has been bullish on small-cap stocks, we have covered his bullish sentiment in 8 Most Undervalued Penny Stocks To Buy According To Analysts. Here’s a piece from the article:

“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.”

Our Methodology

To get the list of 8 high growth penny stocks that are profitable in 2024 we relied on the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener we got a consolidated list of stocks which are trading below the share price of $5 with positive forward P/E, and more than 8% sales growth during the past 5 years. For this aggregated list we sourced the 5-year net income growth and revenue growth rates from Seeking Alpha and the GAAP trailing twelve-month net income from Yahoo Finance. Lastly, we ranked our stocks based on the number of hedge fund holders as per Insider Monkey’s Q2 2024 database. Please note that the share prices were recorded on October 12 and that the list is ranked in ascending order of the number of hedge fund holders.

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).

Sono-Tek Corporation (NASDAQ:SOTK)

Share Price: $4.14

5-Year Net Income Growth: 59.72% 

5-Year Revenue Growth: 12.49% 

TTM Net Income: $1.72 Million 

Number of Hedge Fund Holders: 2 

Sono-Tek Corporation (NASDAQ:SOTK) is a technology company specializing in ultrasonic coating systems. The technology applies a very thin layer of coating on parts in various industries. The coating system is being used in microelectronics, alternative energy equipment, medical devices, and advanced industrial manufacturing.

It ranks as the 7th high-growth penny stock that is profitable in 2024. We say this because, over the past 5 years, the company has grown its top line by 12% and bottom line by 60%, with a trailing twelve-month net income of $1.72 million.

If we look at the first quarter results for fiscal 2025, Sono-Tek Corporation (NASDAQ:SOTK) is still moving higher in terms of revenue and profitability. Net sales for the quarter were up 40% year-over-year at $5.03 million. Whereas, gross profits also increased 38% during the same time to reach $2.45 million.

The company’s use cases in high-growth industries are leading to its performance. The most recent quarter was driven by increased orders from green systems energy, medical technology, and semiconductor markets. As a result, management has been able to maintain a healthy order backlog, which as of May 2024 stood at $7.83 million, more than the full quarter sales.

Sono-Tek Corporation (NASDAQ:SOTK) continues to expect improvement in sales. For the upcoming quarter, management expects 2% to 5% more sales from the FQ1 2025, with improved margins.

Here is what Long Cast Advisers has to say about Sono-Tek Corporation (NASDAQ:SOTK) in its Q3 2023 investor letter:

“Sono-Tek Corporation (NASDAQ:SOTK) is another company expanding its footprint and backlog. I last wrote about this in 4Q21. The Milton, NY based company historically made specialty nozzles for depositing specific and measured amounts of liquified materials. Over the last decade it has transitioned from just manufacturing nozzles for OEM’s to now designing, manufacturing and selling the units themselves. Two of their recent innovations are a roll to roll continuous system for fabric coating and a continuous glass coating system that is more precise and efficient than existing solutions on the market.

The company owns the industrial park from which it operates and over the last few years as tenant leases have lapsed, it has taken over more of its space for manufacturing. With year-end backlog at record highs, additional capacity and easy comparisons, significant growth in ’24 seems likely.

A near term opportunity, towards which there is some visibility, is customers going “from the lab to the production” i.e. they used SOTK equipment “in the lab” and now need larger higher priced units to produce at scale. I believe one can observe an example of this in process. Here’s a video from a start- up using SOTK equipment in the lab (the logo is covered in tape) and here’s a photo from an article about that company in Fast Company with a larger piece of SOTK equipment in the background (their equipment sprays on the materials to form a catalyst that looks like a large bike tire repair patch).

The long term opportunity, which in my view could yield multiples greater return, could occur if SOTK’s spray deposition can replace some portion for the large market for higher cost batch process vacuum deposition. I believe that the company is pursuing R&D and / or license deals pursing this opportunity. In the meantime, without regard for any unknowable future, you have a profitable company funding its own growth, operating with a healthy balance sheet and patiently developing solutions around a core skillset. These are the kinds of things that favorably tilt the odds towards long term value creation.”

Overall SOTK ranks 7th on our list of high-growth penny stocks that are profitable in 2024. While we acknowledge the potential of SOTK 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 a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure. None. This article is originally published on Insider Monkey.