You and I both know that penny stocks carry substantial risk — that’s a given. However, it’s wise to have a small, speculative portion of your portfolio dedicated to these high-upside plays. While the odds of hitting a multi-bagger are slim, the potential rewards can be life-changing if you catch lightning in a bottle.
Sure, the chances of such an outcome are remote, but it’s not an impossibility either. Over the years, we’ve witnessed numerous penny stocks skyrocket from obscurity to mainstream juggernauts.
The key lies in identifying quality businesses with robust growth runways and a visible path toward consistent profitability. While penny stock management teams don’t exactly inspire confidence, there are always diamonds in the rough. These potential multi-baggers may be flying under Wall Street’s radar today, but that could change in a heartbeat once the growth story gains traction.
A modest 5-10% allocation to high-risk, high-reward plays can supercharge your overall portfolio returns without jeopardizing your core holdings. Of course, this strategy requires an iron-clad stomach to withstand the inherent volatility. But for those with the appropriate risk tolerance, the following seven penny stocks could potentially deliver such gain.
SSC Security Services Corp. (SECUF)
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Cybersecurity stocks have been red hot amid an epidemic of hacking and data breaches. However, SSC Security Services (OTCMKTS:SECUF) has languished flat for five years. I expect this disconnect to change.
Revenue has ballooned from $25 million to $109 million from 2020 to 2023. Yet, net income barely budged. That’s mostly because the company’s management focuses more on growth than margins. Once efficiency improves, profitability should soar. Pricing power is a given in cybersecurity, so I have zero worries about this company’s ability to become solidly profitable.
Either way, cash exceeds debt 5 to 1. When profitability matches top-line momentum, SECUF could deliver exponential upside. The stock has a $10+ fair value estimate per Gurufocus.
Inter & Co (INTR)
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Inter & Co (NASDAQ:INTR) is a high-upside penny stock with minimal downside risk here. This Brazilian super app consolidates banking, investing, insurance and other financial services under one umbrella. The “one-stop shopping” model has fueled stellar growth in developing markets. And INTR is solidly profitable.
Projections call for 25% revenue growth in 2024 and 18% annually after that. EPS is expected to climb from $0.43 to $0.73 in the same timeframe. You’re paying 13x forward earnings for this growth, which is very cheap for a software company. Moreover, the stock also has a 0.59% dividend yield for income while you wait.
Inter & Co ranks as Brazil’s 3rd largest neobank with 27 million customers. As the country’s market expands rapidly, INTR seems poised to capitalize.
Nanosonics (NNCSF)
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Nanosonics (OTCMKTS:NNCSF) is an infection control company. Its flagship product, the trophon ultrasound probe disinfector, enjoys strong demand in semi-critical procedures. NNCSF’s multi-year slide has been ugly. However, I’m bullish on a turnaround.
It delivered 38% top-line growth for all of 2023. Plus, almost $20 million in net income proves Nanosonics has turned the corner profitability-wise. Analysts forecast approximately 10% annual revenue growth over the next decade. This company also has a sturdy cash position exceeding debt 11 to 1. You’d rarely clean balance sheets like this regarding penny stocks.
ITM Power (ITMPF)
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ITM Power (OTCMKTS:ITMPF) is an exciting clean energy play that could surge once rates decline. This U.K. company produces hydrogen fuel cells, harnessing renewable electricity and water to generate emission-free hydrogen for vehicles, power and industry. With the world’s largest proton exchange membrane factory, ITM is scaling up as demand for green hydrogen accelerates.
While the stock has languished below a penny recently, a turnaround may be imminent given ITM’s triple-digit growth trajectory. Analysts forecast revenue rising from $21 million to $1.14 billion over the next decade — a staggering increase even if they fall short.
The company boasts a fortress balance sheet with $309 million in cash against only $9 million in debt. This provides ample funding to reach profitability as the net loss shrinks. It was just $9 million last quarter compared to $101 million in fiscal 2023.
KonaTel (KTEL)
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KonaTel (OTCMKTS:KTEL) presents a speculative but potentially lucrative telecom play. KonaTel relies partially on the federal Affordable Connectivity Program (ACP) along with the Lifeline subsidy. With ACP funds set to run out in April barring renewed support from Congress, fears have crushed the stock.
However, much negativity appears priced in already. Even if ACP discontinues, the Lifeline program will still be running. While a complete loss of ACP would still hurt, KonaTel can benefit from its existing Lifeline customers and pursue new contracts. These opportunities seem overlooked at current prices.
Admittedly, KonaTel is still high-risk. However, the company could bounce back post-ACP with 5G and rural broadband expansion tailwinds. The upside may justify taking a starter position.
Zoo Digital (ZDGGF)
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Zoo Digital (OTCMKTS:ZDGGF) has struggled recently amid sliding margins and slowing sales. However, this obscures its long-term potential — revenue and free cash flow have compounded at 36% and 144% over the past three years.
It is trading at just 1.1x forward sales right now. Thus, ZDGGF could be poised to rebound once macro conditions improve, given its 59% projected sales recovery next year. The company’s solutions remain critical for adapting global media content.
With a superb cash position and no debt, Zoo Digital has levers to drive a turnaround. Gurufocus estimates shares could quadruple to reach fair value.
Byron Energy (BYROF)
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As energy security concerns mount, Byron Energy (OTCMKTS:BYROF) is an oil and gas exploration play. This Australian driller operates in the U.S. Gulf of Mexico through various blocks with high working interests. Its focus on shallow waters differentiates Byron from its peers.
With Trump vowing domestic energy expansion, Byron looks positioned to capitalize. Revenue is forecast to climb from $60 million to $91 million in 2025, with attractive net margins at almost 24%. It trades at just 11 times earnings. Trump has solid poll numbers, so it might be time to invest in some stocks that would benefit from him possibly winning. Even if he isn’t elected, the U.S. still greatly focuses on energy independence.
Admittedly, small-cap energy stocks bring elevated risks. However, Byron’s reserves and political backdrop make it an asymmetric opportunity. Gurufocus estimates $0.35 as fair value.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies with a market cap of less than $100 million or trade less than 100,000 shares daily. These “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Omor Ibne Ehsan 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.
Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.
