Three Penny Stocks to Look Into in February 2024
Like altcoins against Bitcoin, penny stocks can offer greater gains than blue-chip stocks. Due to their low market cap weight, penny stocks have a low investment barrier to entry and the potential to grow much higher.
But the question is, which ultra-cheap stocks under $5 align with growth trends from which they can benefit?
Global Self Storage, Inc. (NASDAQ: SELF)
Since the beginning of the Industrial Revolution, a singular trend has been consistent across the global population: urbanization. According to the UN, the percentage of city dwellers should increase to 80% by 2050 from the present 55%.
The urbanization trend infers greater demand for self-storage facilities due to limited space for personal belongings. Additionally, the digital era enables a more mobile lifestyle, leading to a greater need for temporary storage solutions. The downsizing of living spaces from older generations, according to NAR, is another self storage demand pressure.
Per Mordor Intelligence report, the self-storage market size should reach $72.15 billion by 2029 from the present $58.26 billion, growing at a CAGR of 4.37%. As a real estate investment trust (REIT), Global Self Storage provides such services for commercial and residential needs.
At 6.68% dividend yield and annual dividend payout of $0.29 per share, SELF has had a steady payout growth since 2016. As of the latest Q3 2023 earnings report, SELF delivered a 3.7% increase in total revenue of $9.2 million going back nine months. During that period, funds from operations (FFO) decreased by 5.4%.
Compared to Q2, the company’s same-store occupancy remained largely flat (89.8% – 90.4%), as did the same-store average tenant duration, which remained at 3.3 years. Earnings per share decreased from $0.08 in a year-ago quarter to $0.02 in Q3. At a present price of $4.33 per SELF share, the company offers a cheap entry into the REIT dividend payout stream.
Compass, Inc. (NASDAQ: COMP)
Over the last three months, COMP shares went up 101%. The real estate brokerage provides residential real estate agents an end-to-end service, including cloud-based software, marketing, and customer relationship management. In the latest Q3 2023 earnings, Compass agents completed 12% fewer transactions from a year-ago quarter.
Likewise, the company suffered an 11% gross transaction value (GTV) decline, delivering a 10% year-over-year revenue decrease and a net loss of $39 million. However, this is a significant improvement from the net loss of $154 million from a year-ago quarter. Despite the worsening of the market, Compass achieved positive free cash flow for the second quarter in a row.
In numbers, that means a $235 million free cash flow improvement for the first nine months of 2023 despite a revenue decline of $1.1 billion. With lower costs and better agent retention, Q4 2023 outlook forecasts adjusted EBITDA of negative $35 million to negative $20 million.
Based on nine analyst inputs pulled by Nasdaq, COMP stock is a “buy.” The average COMP price target is $4.23 vs the current $3.95. The high estimate is $5, while the low forecast is $2.7 per share.
Rackspace Technology, Inc. (NASDAQ: RXT)
Over the last three months, RXT shares are up 48%. The multi-cloud company provides end-to-end cloud solutions agnostic to technology stacks in place, making it a cost-saving measure for businesses.
However, Rackspace reported a 7% year-over-year revenue decline in Q3 2023 earnings, at $732 million. The company cut its net loss significantly from a year-ago quarter, from $512 million to $227 million. With cash and cash equivalents of $278 million, Rackspace picked a new executive board member on February 8th.
Following Thomas Cole’s unexpected death, Mark Gross, a 25-year veteran of grocery wholesalers, banking, and retail technology systems, will replace him. The news boosted RXT stock by 23% over the week.
Based on eight analyst inputs pulled by Nasdaq, RXT stock is a “hold.” The average RXT price target is $1.25 vs the current $1.89. The high estimate is $1.5, while the low forecast is $1. With a newly launched AI Anywhere offering private cloud solutions in January, it is yet to be shown if the company’s leadership change will turn the boat.
The company first shifted focus from competing against AWS to designing app environments. The latest shift to generative AI, by collaborating with Nvidia and Dell, could be the winning ticket for renewed growth.
Have you had penny stock turnarounds before? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities/assets discussed in the article.
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