Many penny stocks have the potential to break through the “penny stock ceiling” of $5 per share. On the other hand, there are stocks trading above “penny stock territory” that could be considered as doomed penny stocks.
These doomed equities are likely to become even cheaper due to worsening fundamentals. They can be categorized into two groups. The first group consists of value traps, which may seem like a good deal on the surface but are usually cheap for a reason. There may be underlying issues with the business or other factors impacting future prospects that are not immediately apparent from metrics like price-to-earnings (P/E) or price-to-book (P/B) ratios.
The second group includes busted growth plays that are heading towards penny stock status. These are former high-flying stocks that have crashed and burned due to growth deceleration or the bursting of a market bubble in their sector.
Here are seven soon-to-be doomed penny stocks that investors should avoid at all costs:
1. B&G Foods (BGS)
2. Redfin (RDFN)
Redfin fell into penny stock territory last November but has since bounced back to prices above $5 per share. The real estate brokerage firm’s recovery is attributed to decreased pessimism about the housing market. However, the Federal Reserve’s stance on interest rates raises doubts about the bull case for RDFN stock. Despite potential improvements in the housing market, Redfin’s financial performance may not benefit significantly. Investors should not expect RDFN to reach its previous high of over $90 per share, as a slide back to prices under $5 per share is more likely.
It’s important to note that InvestorPlace does not publish commentary on companies with a market cap of less than $100 million or low trading volumes, as these “penny stocks” are often targeted by scam artists and market manipulators.
Overall, investors should exercise caution when dealing with penny stocks and low-volume stocks to avoid potential risks and losses.