Recent trading activity suggests that penny stocks are in the spotlight. According to the Financial Times, stocks priced below $1 have comprised more than 14% of 2024’s trading volume thus far, illustrating the growing demand for penny stocks.
The question now becomes: Are penny stocks undervalued, or are speculators dominating trading volume?
I believe numerous penny stocks are undervalued. Moreover, if selected correctly, penny stocks provide diversification benefits. Sure, some penny stocks often possess outlying risks. However, careful screening methodologies can abate such risks, providing investors with scintillating risk-adjusted investment opportunities.
Given the above, I decided to search for three undervalued penny stocks. Methodologically, I emphasized fundamental attributes, valuation multiples, and technical pricing points. In addition, I overlayed the analysis with event-driven variables to ensure short-term alignment.
Without further ado, here are three undervalued penny stocks to consider.
Most Undervalued Penny Stocks: Graham Corporation (GHM)
Graham Corporation (NYSE:GHM) operates in the engineering field, emphasizing the design and development of high-level solutions for participants in the defense, space, and energy industries.
Although it has been around the block for a long time, GHM stock has plenty of upside potential after realigning its corporate strategy with modern demands. Among the contributing factors to Graham Corporation’s pivot was its acquisition of aerospace equipment supplier Barber-Nichols in 2021. Moreover, Graham Corporation acquired P3 Technologies last year to add key turbo propulsion synergies to its Barber-Nichols unit.
Furthermore, GHM stock’s short-term variables are well-placed. For instance, Graham Corporation’s fourth-quarter earnings report impressed after the firm exceeded its quarterly revenue estimate by $4.6 million. Additionally, Graham Corporation recently sealed $17 million worth of surface condenser systems orders, providing it with noteworthy pipeline revenue.
Lastly, GHM stock’s valuation prospects are intact. Although its price-to-earnings ratio of 65.83x is questionable, its price-to-sales ratio of 1.62x is solid. Why would I look past GHM stock’s price-to-earnings ratio? The short answer is that Graham Corporation is blitzscaling under its new corporate strategy; therefore, I prefer emphasizing its top-line valuation.
Zomedica (ZOM)
Zomedica (NYSE:ZOM) is a veterinary health company operating in pet pharmaceuticals’ design, development, and commercialization. Although a frequently mentioned penny stock, Zomedica has suffered a series of declines, leading to a drawdown of more than 80% since its inception. However, key variables suggest ZOM stock is undervalued and ready to rumble.
A leading indicator has emerged, indicating a turnaround is en route. Zomedica recently announced it has increased its operating capacity by finalizing the expansion of its manufacturing facility in Roswell, Georgia. This move suggests that Zomedica is ready to scale, concurrently providing its shareholders with growth prospects. Moreover, Zomedica’s expansion adds to its tangible asset base, phasing sustainable growth into its business model.
Furthermore, Zomedica’s short-term variables have improved. For example, Zomedica’s first-quarter earnings report dropped in May, revealing $6.3 million in revenue, a 14.5% year-over-year increase. Additionally, Zomedica reported $90.9 million in cash and equivalents, conveying its ability to reinvest in both tangible and intangible assets.
ZOM stock has a price-to-sales ratio of 5.66x, which I deem prudent, given its illustrious three-year compound annual growth rate of 11.29x.
Knightscope (KSCP)
Knightscope (NASDAQ:KSCP) is a security and robotics company situated in the United States. The firm has access to secular growth prospects due to its exposure to the robotics industry, a market touted to grow by 29.23% annually until 2028. In fact, Knightscope’s systematic support is echoed by its five-year compound annual growth rate of 31.18%.
Another attraction to Knightscope is its contract success rate. Earlier this week, the company announced it had won a campus security contract from an unnamed Ivy League school. The contract announcement comes only two months after Knightscope achieved 18 new contracts and five renewal agreements valued at over $1 million.
Furthermore, Knightscope’s fundamental growth was communicated by its first-quarter earnings report, released three weeks ago. The company’s quarterly revenue settled at $2.25 million, which is commendable for a niche firm founded merely 11 years ago.
Although Knightscope has illustrated fundamental zeal, its stock has yet to reach its full potential. For example, despite its array of positive news, it remains below its 10-, 50-, 100-, and 200-day moving averages. Additionally, KSCP stock has a price-to-sales ratio of 2.03x, which is low for a growth stock.
Some might say the above-mentioned variables signal busted growth. However, I think they explicitly convey a value opportunity!
On the date of publication, Steve Booyens did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.