We recently compiled a list of the 10 Best NASDAQ Penny Stocks To Invest In. In this article, we are going to take a look at where PowerFleet, Inc. (NASDAQ:AIOT) stands against the other NASDAQ penny stocks.
Penny stocks are companies that are trading under $5 per share. They represent a unique and controversial segment of the financial market. Penny stocks are known for their low market capitalization, limited liquidity, and high volatility. While penny stocks can offer significant returns for investors, they are full of risks that often make them unsuitable for the average investor. Moreover, penny stocks are more prone to scams such as pump-and-dump schemes, chop stocks, and reverse mergers. We discussed these scams in detail in our article on the best books on penny stocks.
Despite the risks, penny stocks also come with huge advantages. One of the biggest advantages of penny stocks is their potential for massive gains even with a small increase in price. For example, a $1 stock rising to $2, provides a 100% return on investments, which makes them perfect for investors with high risk tolerance.
Assessing the Favorability of Current Market Conditions for Small-Caps
On July 15, Tom Lee, Fundstrat Global Advisors co-founder and head of research discussed the recent rotation of funds from large-cap stocks into small-cap stocks and expressed optimism about their potential rise, in a CNBC interview. The Russel 2000 small cap index is up 11.55% higher between July 9 and 16. He believes the current rally, which began last week, could be more substantial than the October to December 2023 rally that saw a 27% gain in the small-cap index over eight weeks. Lee attributed this rally to larger institutional short positions and even more oversold conditions, in addition to lower valuations, with median P/E ratios now at 10 times 2025 earnings. He predicts a 40% rise over ten weeks, further fueled by the June CPI data indicating softer inflation, which could lead the Fed to cut rates by September.
Regarding the S&P 500, Lee expects July to be positive and expects the broader market index to possibly reach 5700-5800 (0.6% to 2.3% increase from July 16 levels). However, he expects a more pronounced rotation into small caps in August, potentially leading to flat or slightly declining performance for the broader market. He noted that during the previous small-cap rally, large caps underperformed, and he expects a similar dynamic this time, given the significant current short positions against small caps. If Lee’s prediction holds, penny stocks, which account for a significant number of penny stocks, could prove to be attractive investments.
However, if we look at the broader market apart from the penny stocks, AI has been driving the NASDAQ but market participants have raised concerns about a potential AI bubble. This sentiment is shared by Jefferies analysts, Jim Covello from Goldman Sachs, and David Cahn from Sequoia Capital, among others. These analysts are showing skepticism about AI’s economic impact and suggesting that AI may not deliver substantial returns to justify its high costs. Jefferies highlighted difficulties in AI monetization and noted that global investments in AI servers are expected to range from $400 billion to $500 billion between 2023 and 2025, with high power costs adding to the challenge. The firm emphasized that considerable AI revenue is required for a satisfactory return on investment. While current AI stocks are supported by solid cash flows, unlike during the dot-com bubble, the market may see a correction if monetization goals are not met by 2025 or 2026.
On a positive note, other analysts such as Joseph Briggs of Goldman Sachs are optimistic about AI’s potential. They project that generative AI could automate a substantial portion of tasks, leading to significant productivity and GDP growth over the next decade. Despite high current expenditures, some analysts believe the investment in AI is comparable to past technology cycles. They argue that companies linking AI investments to revenue growth are being rewarded, indicating that the investments may pay off in the long run. While there are short-term challenges like chip shortages, the broader adoption of AI could positively impact various sectors, including utilities, in the future. Finally, the potential for AI to transform industries and drive efficiency remains high, with the possibility of future advancements that could justify current spending.
Our Methodology
For this article, we identified around 90 penny stocks listed on NASDAQ with Buy or better analyst ratings and market capitalizations of over $300 million. We narrowed down our list to 10 stocks based on multiple but different metrics such as future growth prospects, valuations, and analysts’ ratings and comments. We listed the stocks in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.
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).
A fleet of trucks on a highway, transporting goods for the company.
PowerFleet, Inc. (NASDAQ:AIOT)
Share Price as of July 12: $4.69
Number of Hedge Fund Holders: 17
PowerFleet, Inc. (NASDAQ:AIOT), previously known as I.D. Systems, Inc., offers Internet-of-Things solutions, including SaaS cloud-based application data, hosting, maintenance, support and consulting services, and more. The products track, manage, and optimize mobile assets/resources (such as industrial trucks, trailers, containers, and vehicle fleets) and collect data. The company’s technology enables businesses to monitor where their mobile assets are and how they’re doing in real-time, using wireless connections. It helps them handle their assets better by improving how they’re used, maintained, and operated. The technology also keeps assets safe from unauthorized use by controlling access and monitoring them closely. PowerFleet provides real-time visibility, control, and security over mobile assets, helping customers save time, money, and resources while enhancing safety and meeting regulations. This technology is used in various industries such as transportation, warehousing, manufacturing, and retail. The company provides its products under the PowerFleet, Pointer, and Cellocator brands.
In the first quarter, 17 hedge funds had stakes in PowerFleet, Inc. (NASDAQ:AIOT), with total positions worth $85.531 million. With over 6 million shares worth $32.16 million, Private Capital Management is the most prominent shareholder in the company, as of March 31. It takes the 6th spot on our list of best NASDAQ penny stocks to invest in.
In 2023, PowerFleet, Inc. (NASDAQ:AIOT) began a major effort to improve its position in the fast-growing IoT industry, which is expected to grow to $4.06 trillion by 2032 from $714.48 billion in 2024, according to a report by Fortune Business Insights.
The company introduced a new software platform called Unity that uses AI and data analysis to better manage assets and operations. This platform has been a big success for the company, helping it work more efficiently and find new sales opportunities among its current customers. As a result, it is spending less to find new customers and increased revenue streams.
In the last quarter of 2023, the company’s high-quality software revenue grew by 16% compared to the previous year. Moreover, total revenue performance in Q4 of 2023 marked a significant milestone, growing by 9% year-over-year, and it represented the company’s strongest performance in six quarters.
According to PowerFleet’s (NASDAQ:AIOT) management, market signals and customer feedback point to the effectiveness of the Unity platform in addressing critical points across the mobile asset market. The platform’s success in North America, a primary focus area for Unity’s go-to-market strategy, and a substantial 16% annual revenue growth is a testament to its success and adoption in the market.
The growth indicates that PowerFleet (NASDAQ:AIOT) is expanding its share of wallet (SOW) with existing customers and is able to attract new enterprise-level accounts. Looking forward, PowerFleet (NASDAQ:AIOT) anticipates that Unity will evolve and become a comprehensive IoT platform.
Wall Street analysts also look at PowerFleet’s (NASDAQ:AIOT) stock quite favorably as 7 analysts maintain a Buy-equivalent rating on the company and the stock has an average price target of $8.00, which represents an upside of 70.6%, as of July 12.
Overall AIOT ranks 6th on our list of the best NASDAQ penny stocks to buy. You can visit 10 Best NASDAQ Penny Stocks To Invest In to see the other NASDAQ penny stocks that are on hedge funds’ radar. While we acknowledge the potential of AIOT 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 AIOT 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.
