In this article, we will look at the 8 Most Undervalued Penny Stocks To Buy According To Analysts.
What Does the Stock Market Look Like for Small Cap Stocks?
Analysts have been bullish on small-cap stocks and their potential to outperform large caps in a slowing economy. However, the current environment is presenting some choppiness due to elections being just around the corner, thereby demanding some caution from investors.
To talk about what the stock market looks like today and in the near future. Tom Lee, co-founder of Fundstrat Global Advisors joined CNBC in a recent interview. He has been one of the strong proponents and supporters of small-cap stocks. Lee says that we are in a volatile environment currently, due to a few reasons, one being the elections in less than 30 days, the second being the Middle Eastern crisis which is scaring investors, and lastly the port strike that has the potential to cripple the economy. However, he still expressed his optimism that the year-end has a lot of tailwinds and investors shouldn’t be afraid to buy the dip. Moreover, Lee also highlighted that these current events are all short-term headwinds in a buying cycle and are expected to die down quickly.
Lee thinks that bottoms are tough and processed, and small caps are in the process of what could be a multi-year bottom. Therefore the conviction is that some people might want to buy the big names on NASDAQ and the AI market, however, with small caps trading at lower multiples of P/E less than 10, the risk and reward lie in small caps. Lee further mentioned that interest rate cuts and better earnings growth make the path for small-cap growth more visible.
Tom Lee has also reaffirmed his belief that the S&P 500 could close above 5,700 by year-end, supported by strong economic fundamentals and a dovish Federal Reserve beginning to cut interest rates. He noted that significant cash reserves are available for investment, which could drive stock prices higher in the next three to twelve months.
In addition to this, another important news highlight has been regarding the jobs report, which has shown par expectation results. We recently covered the 8 Most Undervalued Growth Stocks To Buy According To Wall Street Analysts, here’s a short excerpt from the article:
“Analysts and the market blamed the Fed for not cutting the interest rate earlier in July. However, the sentiments seemed to have shifted with the recent jobs report with above-expectation data. The data from the Job market shows that Nonfarm payrolls increased by 254,000 in September and unemployment rates fell to 4.1% from 4.2%.
These new statistics are making the market think, was the 50 basis point too much another question that comes up is what the Fed will do in the next meeting. Sylvia Jablonski, Defiance ETFs CEO and CIO joined CNBC to discuss the issue recently. She mentioned that the Fed is data dependent and every move they make is based on the latest available data. The market was questioning the Fed for the delay in rate cuts, however, the data that the Fed had at the time was pointing towards the job market going the other way. Jablonski thinks that they made the right call to cut the interest rates by 50 basis points. However, with the current jobs market report it is difficult to expect another 50 basis point cut. She thinks that it will either be by a 25 basis point cut or no cut at all.
As of now the market seems to be doing good, the job numbers came in above expectations, and wages are good which tells that the consumers are likely to spend more which will be feasible for the economy. Jablonski also mentioned that the S&P 500 has been up by 20% in 2024 and thinks that the earnings for stocks are strong.”
With that let’s talk about the 8 most undervalued penny stocks to buy according to analysts.
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Our Methodology
To curate the list of the 8 most undervalued penny stocks to buy according to analysts we first defined a criteria. We defined penny stocks to be the ones trading under the price tag of $5 and called a stock cheap if it is trading at a forward P/E lower than the market average of 24.35 (the market’s P/E ratio as per Wall Street Journal) with earnings expected to grow during the year.
To get our stocks we used the Finviz screener and used the aforementioned criteria. Once an aggregated list was ready, then we ranked the stocks based on analyst upside potential sourced from CNN. Please note that the figures are as of October 9, 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Most Undervalued Penny Stocks To Buy According To Analysts
8. Expensify, Inc. (NASDAQ:EXFY)
Share Price: $1.82
Forward P/E: 8.29
Earnings Growth: 2300.00%
Number of Hedge Fund Holders: 17
Analyst Upside: 37.36%
Expensify, Inc. (NASDAQ:EXFY) is an online expense reporting and management service company. It operates through a cloud-based expense management software that helps businesses manage their financial transactions.
Some of the key features of the platform include SmartScanning, Guaranteed eReceipts, receipt forwarding, and receipt apps and partners. Users can simply scan the receipts from flights or hotels using a mobile app and the app automatically captures and records important information from the receipts. Moreover, its expense-tracking software allows individuals and organizations to track day-to-day expenses.
One of the key features that set the platform apart is its ability to integrate with other accounting software including QuickBooks and Xero for seamless financial management.
The total addressable market for the company still remains untapped. There are around 1.3 billion users in the very small businesses and small business segments. Management has plans to capture 99% of this market in the fiscal 2025. Moreover, it is also ready to initiate its viral bottom up word of mouth strategy to publicize its platform within its addressable market. Lastly, it will also improve its margins with monthly subscriptions.
During the second quarter of 2024, the total revenue of Expensify, Inc. (NASDAQ:EXFY) reached $33.3 million with average paid users standing at 684,000. Moreover, the company also generated $5.7 million in free cash flow. The platform also provides employee reimbursement services which earn significant interchange when employees file a card payment from their platform. The quarterly interchange was $4.0 million a 48% improvement year-over-year. It is one of the most undervalued penny stocks to buy according to analysts.
Here is what Baron Fintech Fund has to say about Expensify, Inc. (NASDAQ:EXFY) in its Q2 2022 investor letter:
“Shares of Expensify, Inc., an expense management software provider for businesses, contributed to performance. The company reported strong quarterly earnings, expressed confidence in the business outlook, and initiated a share repurchase authorization. High-growth software stocks have recently been out of favor, but we retain long-term conviction in Expensify due to its large addressable market, rapid pace of innovation, and impressive combination of growth and profitability.”
7. Babcock & Wilcox Enterprises, Inc. (NYSE:BW)
Share Price: $2.45
Forward P/E: 15.5
Earnings Growth: 115.20%
Number of Hedge Fund Holders: 19
Analyst Upside: 73.47%
Babcock & Wilcox Enterprises, Inc. (NYSE:BW) is a leading technology provider in the renewable energy and environment industry. It mainly focuses on developing technologies that help generate power and heat in an environmentally friendly manner.
Some of the key technologies of the company include waste to energy, biomass to energy, and black liquor systems that are designed for the pulp and paper industry to recover energy from waste products.
Since its inception in 1867 when it only had a single patent, Babcock & Wilcox Enterprises, Inc. (NYSE:BW) has gone on to expand its portfolio of efficient boilers and other systems to 17,000 patents.
The second quarter of 2024 was driven by a strong operating performance for the company. Although the revenue of $233.6 million was lower compared to the same quarter last year, it was still above analyst expectations. Moreover, the net income of $25.4 million and operating income of $42.2 million also exceeded expectations.
The year-over-year decrease in revenue was already anticipated due to its strategic shift away from lower-margin new-build projects and the timing of a large U.S. construction project. What’s impressive about this undervalued penny stock is its year-to-date bookings of $383.1 million and implied bookings of $668.5 million, a 71% increase compared to the first half of 2023.
Moreover, the management has also reiterated full-year guidance Adjusted EBITDA target range of $105.0 million to $115.0 million, excluding BrightLoop and ClimateBright expenses.
6. Olo Inc. (NYSE:OLO)
Share Price: $4.70
Forward P/E: 22.63
Earnings Growth: 33.30%
Number of Hedge Fund Holders: 21
Analyst Upside: 80.85%
Olo Inc. (NYSE:OLO) is a technology company that helps restaurants manage their online ordering and payment processing. It operates a leading open SaaS platform with a reach of more than 700 brands, and 82,000 restaurants, and processes more than 2 million orders per day.
Its platform offerings are divided into three main areas including order, pay, and engage, which allows restaurants to manage both on-premise and off-premise operations. During the second quarter of 2024 CEO and founder, Noah Glass announced another POS integration partnership for Olo Pay and Engage, which will move the company a step closer to becoming a full-stack payment processing and data aggregation company.
The second quarter revenue of Olo Inc. (NYSE:OLO) grew 28% year-over-year to $70.5 million. The growth was driven by a strong platform revenue which came in at $69.6 million after improving 27% during the same time. The operational efficiency of the company can be estimated by its growing Average revenue per unit which grew 19% year-over-year to reach $852. Management continues to add new locations to its business and ended the quarter with 1,000 new locations.
Conestoga Capital Advisors Micro Cap Strategy stated the following regarding Olo Inc. (NYSE:OLO) in its fourth quarter 2023 investor letter:
“Olo Inc. (NYSE:OLO): OLO is a SaaS technology platform that enables its greater than 600 restaurant brand customers to reach their customers across over 77,000 locations. OLO reported third quarter results ahead of expectations and nudged full year guidance higher, however, they also announced Wingstop would no longer be a customer. Wingstop had 1,800 locations on the OLO platform and contributed nearly 2-3% of revenue. OLO recovered later in the quarter as the company announced Waffle House, operator of 2,000 restaurants, would join the OLO platform and adopt multiple products.”
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