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 Nerdy, Inc. (NYSE:NRDY) 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).

Nerdy, Inc. (NYSE:NRDY)

Number of Hedge Fund Holders:  17

Nerdy, Inc. (NYSE:NRDY) operates a software application platform for live online learning. The company leverages technology including AI to connect users like students with instructors and tutors.

In Q1 2024, Nerdy, Inc. (NYSE:NRDY) reported revenue of $53.7 million, highlighting a growth of 9% year over year from $49.2 million in Q1 2023. The revenue growth outperformed expectations by a considerable margin driven by the continuous scaling of consumer and institutional businesses.

Moreover, the Varsity Tutor platform access expanded to include 1.2 million institutional students bringing the number to 2.2 million students. The Varsity Tutor platform executed 83 contracts yielding $4.4 million of bookings.

In addition, the learning memberships of the company continued to scale up in Q1 2024, reporting revenue of $39.9 million from learning memberships, which grew 34% compared to the same quarter in the previous year. Institutional business revenue posted a strong growth in revenue of $11.9 million which grew by 39% YoY.

Moreover, the firm reported a Gross profit of $36.5 million and a non-GAAP adjusted EPS of $-0.01 beating the analysts’ expectations by $0.01.

Nerdy, Inc. (NYSE:NRDY) highlighted the growth of learning sessions in its shareholder letter Q1 2024:

“Utilization of Institutional high-dosage tutoring products, which included our new District Assigned, Teacher Assigned, Parent Assigned, as well as our platform access offerings reached an all-time high of 772K Learning Sessions3, up 100% year-over-year, demonstrating product-market fit, as well as our ability to scale operations to meet the growing needs of our school district partners.”

Over the past year, Nerdy stock price declined by over 60%, By the end of Q3 2023 in September, the stock price went down from $4.8 to $3.2. The drop was the result of the loss in investor confidence owing to the reported financial results of the previous quarter. A net loss of $5.6 million in Q2 2023, owing to a higher operating expense, in addition, third quarterly revenue guidance reflected a low-point quarterly revenue. This was in part due to the normal seasonality decline and the resulting lower revenues from Learning Membership, legacy package customers, and Varsity Tutors for Schools when the schools and universities are on summer break.

Despite the growth forecast in the next quarters, the company expects a negative adjusted EBITDA in the coming quarter. In addition,  Nerdy, Inc. (NYSE:NRDY) reported a net loss of $12 million in Q1 2024, although it was down from $32.2 million in the same period last year, Nerdy, Inc. (NYSE:NRDY) is far from reaching profitability due to higher expenses.

For instance, there was an increase in sales and marketing expenses due to the investment hike in the Varsity Tutors project pertaining to the school-go-to-market organization.

However, the company put forth strong growth quarter-over-quarter and has set a revenue guidance of $232 million to $246 million for the year 2024. Nerdy, Inc. (NYSE:NRDY) is focused on convergence and simplifying its business to derive continuous growth in the coming years.

Looking forward, the company aims to expand its product access to 10 million students in the U.S. this year. According to 7 analysts’ consensus, the stock has an average price target of $4.89 in the next 12 months, an upside of 194.8% from the current target price.

According to Insider Monkey’s database, 17 hedge funds held stakes in Nerdy, Inc. (NYSE:NRDY) and the total holdings value is $66.3 million.

Overall NRDY ranks 8th on our list of the best technology penny stocks to buy. While we acknowledge the potential of NRDY 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 NRDY 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.