Penny stocks are much riskier than your average investment. After all, you don’t typically have a share price below $5 without some problems, be it a failing business plan, poor execution by management, etc. Yet, for some investors, the potential rewards outweigh the risks. For those itching to put speculative capital to work, I have one extremely low-priced stock for you to consider purchasing. But, first, I have six penny stocks to sell, or at the very least avoid.
With the rash of initial public offerings in 2021, which raised a record $155 billion in proceeds, many speculative companies were brought to market that offered far more in the way of promises than actual results. As the focus shifted from growth to profitability, though, investors headed for the hills. Of course, it wasn’t just startups investors abandoned. Any company with no profits or otherwise shaky fundamentals was cast aside.
Against this backdrop and the continued macroeconomic headwinds, below are six penny stocks to sell that appear to be in major trouble as we head into 2023, as well as one company that may just have what it takes to turn things around.
|AMC, APE||AMC Entertainment||$1.36|
|ATIP||ATI Physical Therapy||$0.54|
Penny Stocks to Sell: AMC Entertainment (APE)
Management has used its preferred stock program as a way of getting around limits on how many shares of AMC stock it was allowed to issue. The creation of these new APE shares has allowed the company to dilute holders with as many as 425 million new shares of APE stock.
Why is AMC raising so much money?
As InvestorPlace’s Dana Blankenhorn pointed out recently, Goldman Sachs analysts recently issued a warning that AMC may never make a full recovery. In the third quarter, box office receipts remained 32% below pre-pandemic levels. This makes it hard for AMC to service its debt given its high interest costs.
Despite considerable trader enthusiasm around AMC stock, there’s simply no sign of a positive inflection point in the company’s operations. This makes AMC and APE both penny stocks to sell.
Bird Global (BRDS)
Bird Global (NYSE:BRDS) is a company focused on micromobility. Specifically, it aims to make electric scooters available to commuters around the United States and in some international markets. The thinking is that many urban areas lack a “last-mile” solution to get folks from public transport to their office, shopping center or other urban destination. Having easy-to-hop-on scooters can make urban areas far more friendly to people without their own vehicles while helping reduce car dependency.
This all sounds great on paper. However, in practice, Bird has struggled to turn its vision into meaningful profits. It seems the company over-expanded, moving into second-tier markets instead of simply focusing on areas with the most promise. Cold and inclement weather has proven to be a problem in a number of markets as well.
There had been hopes that Bird would be able to cut spending and slim its way down to a viable business. However, these hopes appear to have been dashed following a recent earnings report in which Bird admitted that it has been overstating its revenue for the past two years. Shortly thereafter, in a regulatory filing, the company said it may “need to scale back or discontinue certain or all of its operations in order to reduce costs or seek bankruptcy protection.”
It’s unlikely that Bird will be able to raise new capital, meaning the business may be heading for bankruptcy reorganization.
Penny Stocks to Sell: Arrival (ARVL)
Arrival (NASDAQ:ARVL) is a British electric vehicle manufacturer that went public via a special purpose acquisition company in March 2021. Amid intense competition in the space, Arrival’s supposed edge was two-fold. First, it was focused on selling electric vans and buses to commercial clients rather than on the consumer space. Second, it designed and produced its batteries and components in its own “microfactories,” so it was not reliant on third-party suppliers.
Yet, it appears the company was not ready for prime time. After a disappointing debut, it’s been nearly all downhill for the shares. The company has generated no revenue in 2022 and says it won’t generate until 2024. However, its cash pile is likely to run out before then given its large and ongoing operating losses. Oh, and did I mention that a van being demonstrated for its largest known customer, UPS (NYSE:UPS), caught on fire?
Even if Arrival tried to sell its assets to raise cash as a bridge until it starts producing commercial revenue, you have to question how much its intellectual property would be worth. Furthermore, despite the sub-50-cent share price, the company still has a bulky $262 million market capitalization. This makes ARVL stock an awfully expensive lottery ticket at this point.
ATI Physical Therapy (ATIP)
ATI Physical Therapy (NYSE:ATIP) offers outpatient physical therapy services through offices and clinics. There was hope the company would see considerable benefits from scaling up after the firm went public via a SPAC in February 2021.
Unfortunately, the company almost immediately slashed guidance, which sparked lawsuits alleging investors had been misled. And it has repeatedly failed to meet expectations, citing cost overruns and physician shortages. It seems ATI is running out of time to get itself healthy again.
The company’s Q3 results showed revenue declining on a sequential and year-over-year basis, officially ending the growth narrative. Meanwhile, ATI lost $116.7 million in the quarter and now has just $48.6 million of remaining cash on hand. It seems unlikely that ATI will be able to fund itself very far into 2023 at the current rate, which could wipe out any remaining value in shares.
Penny Stocks to Sell: Party City (PRTY)
Party City (NYSE:PRTY) is a brick-and-mortar retailer focused on party supplies such as Halloween costumes, balloons, decorations and the like. The company has run into increasing problems since the pandemic due to inflation, fewer parties and gatherings, and changing consumer behavior. Competition from dollar stores hasn’t helped matters. Adding insult to injury, a helium shortage also hit earnings in the balloon business this year.
PRTY stock has been popular on social media, prompting a likely short squeeze this summer when the stock doubled in short order. However, the tide has gone out again, with shares trading at their lowest level since the pandemic crash.
Fitch recently downgraded Party City’s credit rating to CCC from B-, pushing it further into junk territory. The credit rating agency cited concerns about the “rapid deterioration in Party City’s operating and liquidity profile and Fitch’s belief that Party City’s capital structure is likely untenable.”
If the company doesn’t enjoy a strong holiday season, the party could be over for this retailer’s shareholders.
Clover Health (CLOV)
Clover Health (NASDAQ:CLOV) was one of Chamath Palihapitiya’s SPAC targets. You might remember Palihapitiya as the “SPAC King,” but many of the companies he backed have lost their luster and trade well below the initial $10 SPAC price. CLOV stock is no exception.
Clover Health is an insurance company that is aimed at Medicare Advantage programs. The company initially attracted investors due to its exceptionally high growth rate. However, there’s a dirty little secret in insurance: It’s not hard to grow quickly. That’s because insurance is driven by price. If a firm sells policies at an unusually cheap rate, it can attract tons of customers, but it will likely lose money on said clients. That is exactly what Clover has done.
Q3 results were more of the same. It grew revenue 100% year over year but still reported a net loss of more than $75 million. Clover is now pivoting its business model to try to improve its cost structure and prioritize profitability. However, with its financial resources eroding, it may be too late to turn CLOV stock’s fortunes around.
Penny Stock to Buy: WM Technology (MAPS)
WM Technology (NASDAQ:MAPS), also known as Weedmaps, is a software company that provides payment and marketing services to the cannabis industry. Its mission is to serve as a marketplace for cannabis stores, where consumers can order from licensed producers.
The company has struggled to achieve as much growth as expected due to a slowdown in the industry and problems with some of its customers.
Over the longer term, however, the potential addressable market for the company should grow considerably. And WM has already achieved considerable success with revenue expected to hit nearly $214 million this year. That means shares are selling for just 1x sales.
On top of that, favorable moves from the Biden administration toward the cannabis industry could boost MAPS stock. There is still risk here, as there always is with penny stocks. However, WM has a business with operating momentum, a decent balance sheet and an attractive valuation, making this an interesting penny stock to buy for those with speculative capital.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do 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.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Ian Bezek held no position in any of the aforementioned securities. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.