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Wouldn’t it be great to invest $10,000 today and have that turn into $15,000 within a year? Returns like that aren’t necessarily commonplace in the stock market, but they’re not impossible to find either.
One way to tap into significant gains is to invest in promising companies early in their development. Does that mean penny stocks may be your key to significant returns? As a classification, that is not likely going to happen since most penny stocks will go bust than make it big.
That is why it's important to choose penny stocks wisely. Below, we’ll talk about what penny stocks are, the risk they pose to your portfolio, and five penny stocks with a 50% or higher upside potential.
Key Points
- Penny stocks represent smaller companies that, while they come with considerable more risk, there are some bargains to be found.
- Risks associated with penny stocks include (but are not limited to) company failures and limited liquidity.
- Split-adjusted NIVIDIA was $.24 stock and went on to become the biggest gainer this century. To find the next big winners, grab a copy of our brand-new “The Next NVIDIA” report. It outlines stocks that could dominate the next major trend in AI.
What Are Penny Stocks?
As mentioned above, penny stocks are low-cost stocks that represent relatively small companies, typically in the early stages of development. Here are some characteristics of a penny stock:
- Low Price : Penny stocks trade for less than $5 per share.
- Low Market Cap : Penny stocks are known for low market caps.
- Higher Risk : Penny stocks typically come with higher risks associated with the small size of these companies.
Shouldn’t You Trade Penny Stocks With Caution?
The short answer is, “Yes.” Penny stocks come with higher risk than small-cap, mid-cap, large-cap, and blue-chip stocks, so you should trade them with caution. While these companies have the potential to produce monumental gains over time, there’s a high likelihood that you could lose your money too.
5 Penny Stocks With a 50% (or higher) Upside 1. iQIYI Stock
iQIYI ( Nasdaq: IQ ) is a Chinese video streaming service. It’s what you would expect if Netflix, YouTube, and Hulu had a baby in China. The platform features original and third-party professional content like hit movies and television shows. It’s also home to user-generated content like YouTube videos.
While the company’s revenues were down about 5% year-over-year during the last quarter, it has been working on expanding earnings — and it’s been successful in doing so. In the last quarter, net income was up 6.02%, and diluted earnings per share climbed 11.11%. So what do analysts think about the stock?
Six analysts have shared opinions on iQIYI, four of whom rate it a Buy and two of whom rate it a Hold. The consensus price target is $6.63, representing a potential upside of well over 100%.
2. RLX Technology
RLX Technology (NYSE: RLX) is another Chinese penny stock that’s worth considering. As the tobacco industry makes a shift from combustible tobacco products like cigarettes and cigars to cleaner products like vape pens and other vape products, RLX Technology seems poised for strong growth. The company designs, develops, manufactures, and distributes closed-system rechargeable vape products.
The company’s most recent earnings report was impressive. In the most recent quarter, RLX Technology produced $0.022 earnings per share, beating analyst expectations of $0.014 per share. Revenue was also up significantly, and gross margins are trending in a positive direction.
At the moment, only one analyst is weighing in on the stock. But that analyst rates it a Buy with a $2.80 price target. If RLX shares climb to that $2.80 price within the next 12 months, those who invested today will have earned a more than 55% return on their investment.
3. Getty Images
If you’ve worked in the publishing industry, there’s a high likelihood that you’ve heard of Getty Images (Nasdaq: GETY). Getty Images is a go-to source among online publishers — and even print publishers — for high-quality stock photos and videos. The company’s users pay a nominal fee for the rights to use their images commercially, which has worked out well for Getty over the years.
Unlike most other penny stocks, Getty Images isn’t necessarily a new company. In fact, since its founding in 1995, the company has grown to become a cornerstone for photographers looking for a side hustle as well as business owners looking for high-quality photos and videos to use in their publications and advertisements.
Getty Images’ most recent earnings report left some room for revenue growth, with revenues falling just over 5% year over year. But the company’s focus on producing meaningful earnings seems to be paying off. Net income was up over 399%, and diluted earnings per share climbed 200% year over year in the quarter. Not to mention the more than 400% growth in net profit margin.
Currently, three analysts are weighing in on GETY shares. Two of those analysts rate the stock a Buy, and one rates it a Hold. The consensus suggests that the price of the stock could climb to $6.85 per share over the next 12 months. If that’s the case, those who invested now will have earned a more than 75% return.
4. Gaotu Techedu
Gaotu Techedu (NYSE: GOTU) is a Chinese company that focuses on education technology. And in China, the edtech industry is massive. In particular, Gaotu Techedu connects tutors with school-aged K-12 students. But it doesn’t focus only on younger consumers. The company also provides professional training and foreign language courses for adults who would like to take their talents abroad.
Unlike most others on this list, Goatu Techedu’s most recent earnings report left quite a bit to be desired. While revenues were up over 33% year over year, the same can’t be said when it comes to profitability. The company’s net income was down 110.8%. Diluted earnings fell a similar percentage, with the company reporting a loss of $0.05 per share. But those poor earnings results were largely the result of increasing operating costs — a factor that has to be considered when smaller companies make an effort to grow.
So what do analysts think about Gaotu Techedu?
Two analysts have shared their opinions on the stock lately, both of whom rate it a Buy. Between the two, the consensus price target is $10.47 per share. That price target represents a more than 100% upside potential.
5. Youdao
Youdao ( NYSE: DAO ) is a multi-functional online platform. The platform features translation opportunities for travelers or those who simply want to learn a new language alongside online search functions and an online dictionary. It even offers a wide range of educational resources. Beyond its online platform, the company offers a wide range of smart devices, like smart pens, pocket printers, and more, that can be used alongside its online services.
Youdao’s most recent earnings report is one of the most impressive you’ll read about on this list. In the most recent quarter, the company grew revenues by 19.65%. Net income and earnings per share were both up well over 100%, and profit margins are growing at a rapid pace as well.
As is often the case with penny stocks, analyst coverage is relatively limited. One analyst is weighing in on the stock at the moment. That analyst rates DAO a Buy with a $6.60 price target. If that analyst is correct, shares of the company could climb by more than 80% over the next year, making this stock one that’s well worth watching.
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