Most penny stocks are priced low for a reason. They’re usually on shaky ground, so you get what you pay for. Even though you should steer well clear of most penny stocks, every once in a while, you can find one that might be worth putting some money into.
Here are my three best penny stocks under $5.00 that have the potential to become a good investment. Bear in mind that the risks should be obvious, as these stocks are in the single-digits for a good reason. Due diligence is key.
Sirius XM Holding Inc.
If you bought and held Sirius XM Holdings Inc.(NASDAQ:SIRI) back in 2009 when the stock bottomed out at a nickel, chances are you’re pretty well off. Some of you may have even been able to retire. Despite its low price, SIRI stock has increased 79-fold in the last few years.
When the stock hit rock-bottom, Sirius XM was on the brink of bankruptcy, as fears grew that satellite radio would be a passing fad. Those fears have since faded, as the company has been able to produce solid growth for the last few years. In the latest quarter, revenue was up 11% over the previous year, while net income increased 22% year-over-year. (Source: “SiriusXM Reports Third Quarter 2015 Results,” Sirius XM Holdings, October 22, 2015; http://s2.q4cdn.com/835250846/files/doc_news/SiriusXM-Reports-Third-Quarter-2015-Results.pdf.)
For a stock priced so low, you would think that it doesn’t have a large subscriber base, but it’s quite the opposite case. For 2016, the company is forecasting that it will add about 1.4 million new subscribers, bringing its total to 31.0 million.
Sirius is the top play in satellite radio and with a forward price-to-earnings ratio of 21.97, SIRI stock offers a compelling valuation.
Glu Mobile Inc.
Mobile game-maker Glu Mobile Inc. (NASDAQ:GLUU) flirted with bankruptcy in the past, but the company seems to be roaring back on the heels of a number of partnerships with high-profile celebrities.
Glu made a name for itself a couple of years ago by partnering with reality TV star Kim Kardashian.Kim Kardashian: Hollywood was released in the summer of 2014 and was a smash hit. In February, Glu Mobile CEO Niccolo De Masi said that the game has brought in $100 million since it was launched. (Source: “Here’s How much Kim Kardashian’s Hit Game Has Made,” Fortune, February 19, 2016.)
Glu is hoping to replicate the success of the Kardashian game by mining the Kardashian family once again. This time, it’s Kim’s younger sisters who are getting the spotlight. Glu released Kendall & Kylie featuring the Jenner sisters a few weeks ago, and although it’s too early to tell yet, the game appears to be a success, according to De Masi.
The company also made headlines in February when it announced that it was partnering with Taylor Swift to deliver a game in December featuring the singer. Glu also has partnerships with Britney Spears and Nicki Minaj.
Groupon Inc (NASDAQ:GRPN) stock has been pummelled by investors since its initial public offering (IPO) in 2011, having fallen about 85% on disappointing financial performance and uncertain future prospects.
But things are starting to turn around a bit for the company. Revenue in the last quarter was $917.2 million, up nine percent over last year on a constant currency basis. Net earnings were $20.7 million. (Source: “Groupon Announces Fourth Quarter and Fiscal Year 2015 Results,” Groupon Inc, February 11, 2016.)
Management recently announced that the company is going to try to jumpstart GRPN stock’s performance by significantly increasing marketing expenditures, streamlining international operations, and weaning off low-margin business segments.
At this point, expectations are really low for the company, so any sort of good news will boost GRPN stock.