Why These Penny Stocks Could Explode This Year
Investing in penny stocks, which are stocks that typically trade for less than $5 per share, requires a healthy dose of caution. For every Amazon (NASDAQ:AMZN) that has grown into a multi-bagger, there are probably 10 other Amazons (NASDAQ:AMZN) that have gone nowhere.
However, it’s important to keep in mind that penny stocks don’t have to grow like Amazon to be successful. To be considered a worthwhile investment, it must provide steady, solid returns over time.
It’s probably not a good idea to bet too much on the fate of a small, young or unproven company, but even smaller positions may be warranted, especially if you’re looking for a company with solid growth potential. Here are some penny stocks to consider: Traiger Co., Ltd. (NYSE:Cook).
Leader in pellet grills
Traeger is probably a stock you’ve never heard of unless you own one of their wood pellet grills. Traeger introduced wood pellet grills in 1988, long before pellet stoves became popular, and they remain a top seller in their class.
Traeger has been around since the mid-1980s, but has been a public company since 2021. Since starting trading at $22 per share on July 1, 2021, the stock price has steadily declined to its current price of $2.39. In fact, Traeger stock hasn’t had a positive year since its initial public offering, falling another 12% last year.
However, a few catalysts that could put Traeger back in the right direction make this penny stock worth a look.
The first is low valuation. After three years of negative returns, the price-to-sales ratio has fallen to 0.51, and the price-to-book ratio is 0.96, trading below book value.
Traeger’s gross profit margin also surged from 26.7% in the third quarter of the previous year to 37.9% in the third quarter, improving efficiency. This is important because it shows that the company is more efficient at generating profit through sales. Additionally, guidance for the full fiscal year puts the company’s gross profit margin in the same range of 36.5% to 37%.
Additionally, Traeger has steadily lowered its operating expenses over the past year, narrowing its net loss in the third quarter of 2022 from $211 to $19 million, while improving cost management. Part of that was better inventory management. Inventory in the third quarter was $102 million, down from $153 million at the beginning of 2023. This, in turn, has resulted in lower supply chain costs, as CEO Jeremy Andrus explained in his third quarter report.
“Our efforts to right-size channel inventory allowed for more standardized replenishment rates at retail stores this quarter, which drove strong growth in our grill segment compared to last year,” he said. “Plus, we now see greater benefits from reduced supply chain costs.”
moving towards profitability
As with other penny stocks, they are prone to significant volatility, so caution is advised. This is especially true for stocks like Traeger, which is operating at a net loss.
But valuations are lower, costs are better managed, and gross margins are improving. Additionally, a low inflation environment will help sales of companies that dominate niche markets.
The consensus price target among the nine analysts covering the stock is $4 per share, which is 67% higher than the current price. But even the low end of the consensus estimate represents a 17% increase.
Traeger is scheduled to report full-year and fourth-quarter results in March. These figures, as well as the 2024 guidance, will provide more information about the trajectory. However, Traeger may be a penny stock that could rotate into a moveable stock in 2024.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
