We recently compiled a list of the 10 Best Technology Penny Stocks to Invest in Now. In this article, we are going to take a look at where Grab Holdings Limited (NASDAQ:GRAB) stands against the other technology penny stocks.
According to the U.S. Securities and Exchange Commission (SEC), a penny stock trades for less than $5 per share. Penny stocks are often associated with growing companies with smaller market caps, limited cash flow, and restricted resources. However, it allows the investors to reap benefits from the long-term growth of the company, though these stocks are cheap to invest in they carry a greater risk of loss to the investors.
A higher level of volatility and lower liquidity sets them apart from regular stocks. In other words, higher volatility suggests that investors should expect a drastic change in prices in a given period, resulting in a potential gain or loss. Penny stocks may confuse an investor due to speculations and an inherent uncertainty in gauging its price fluctuation and therefore, these securities are suitable for investors that have a high tolerance for risk.
In addition, a low level of liquidity indicates that these stocks are difficult to sell because there may not be enough potential buyers available. However, not all penny stocks are the same, a diligent investor needs to find stocks that may be undervalued by the market but have the upside potential of growth in the future.
Similarly, there are plenty of good quality penny stocks in the technology sector that are suitable picks for investors looking to invest for long-term growth returns. Before discussing the list, let’s first explore the growth of the technology industry over the past years:
The year 2021 was a memorable one for the tech industry as COVID-19 accelerated digital transformation across enterprises and the demand for remote-work-related hardware and software increased considerably. Moreover, the shortage of semiconductors made headlines as chip manufacturers could not keep up with the surge in demand. The global IT spending grew nearly 10% compared to the previous year.
The technology sector faced challenges in the past two years due to high interest rates, elevated inflation, and considerable macroeconomic and global uncertainties like supply-chain disruptions amid Russia’s invasion of Ukraine. These events contributed to softening of the consumer spending, lowering demand, and reduction in the workforce in 2022. The headwinds continued in 2023 with the downsizing of the labor force and a slight weakening of consumer spending.
Looking forward, economists have assessed a lower risk of recession and tech analysts are optimistic that the tech industry can make a comeback with modest growths in 2024.
Role of Gen-AI in the uplift of the Technology Industry:
Generative AI is a form of machine learning that uses patterns in training data to generate new text, video, images, code, or music that can potentially be indistinguishable from what humans can create. Improvement in transformer-based neural networks in language models has enabled an AI boom in the industry, one such example is Chatgpt.
Companies are integrating AI into their day-to-day operations, and executives across the globe are recognizing the importance of AI in organizing data. According to a forecast by Bloomberg Intelligence, the generative AI market is projected to grow at a CAGR of 42% by 2032 and reach a market size of $1.3 trillion in 2032 from $40 billion in 2022.
Historically, the demand for semiconductors has been largely driven by mobile computing and its use for manufacturing processor chips. However, at present, we witness a novel source in the form of Gen-AI that is accelerating the demand for semiconductors. According to research, the demand for powerful semiconductors could boost the sales of the semiconductor chip industry to $1 trillion by 2030 from $500 billion today.
In addition, the software development service industry is a formidable market with high growth potential for small companies. According to a report by Cognitive Market Research, the global software development service market size was $409.2 billion in 2022 and is projected to grow at a compound annual growth rate of 10.5% from year 2024 to 2031.
Our Methodology:
To compile this list of the 10 best technology penny stocks to invest in, we analyzed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024. To draft this list we filtered tech stocks trading under $5 with a price-target upside of over 30%, and 50 – 70% of shares owned by institutions. We ranked those stocks based on the number of hedge fund holders and then arranged the list based on the ascending order of hedge fund sentiment towards each stock.
Why are we interested in the stocks that hedge funds pile into? 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).
A customer enjoying the convenience of a mobile financial services transaction.
Grab Holdings Limited (NASDAQ:GRAB)
Number of Hedge Fund Holders: 37
Grab Holdings Ltd (NASDAQ:GRAB) is a multinational software developer company that is based in Singapore. It mainly operates three segments of super apps: food delivery, ride-hailing, and online payment services on smartphone devices. The company operates in over 700 cities in 8 Southeast Asian countries: Singapore, Cambodia, Myanmar, Indonesia, the Philippines, Malaysia, Thailand, and Vietnam.
The firm also provides digital insurance and lending services to fulfill the financial requirements of merchants and consumers. Some apps are listed as GrabShare, GrabCar, GrabFood, GrabMart, and GrabInvest, etc. In 2023, Fast Company, an American Business Magazine listed Grab Holdings Ltd (NASDAQ:GRAB) as one of the most innovative companies in the Asia-Pacific region.
Grab Holdings Ltd (NASDAQ:GRAB) has a strong presence in the Southeast Asian ride-hailing and food delivery business. For instance, in 2018 the company announced a partnership with Uber and acquired Uber’s Southeast Asia operations. Furthermore, Grab Holdings also announced a bid to acquire Transcab in July 2023. However, the deal is in the pipeline and is being reviewed, if it goes through this deal will further strengthen Grab’s position in the ride-hailing market.
In its first quarter, 2024 financial highlights, the company reported 24% year-on-year growth and generated a revenue of $653 million in the FQ1 2024 driven by the growth of sales in all segments amid reduced On Demand incentives as a percentage of On-Demand GMV.
The food delivery business and ride-sharing business grew by 19% and 27% respectively and outperformed analysts’ consensus estimates despite seasonal impacts from Chinese festivals and the Ramadan fasting period in the first quarter. While these figures are impressive, an important development is that the company upgraded its monthly transacting users to 38 million in this quarter which grew by 5 million users YoY.
Furthermore, the On-Demand Gross Merchandise Value (GMV) improved by 18% year-on-year owing to the increased consumer demand for mobility and delivery operations.
The company has managed to reduce its losses by reducing operating expenses. The first quarter’s operating loss of $75 million improved by $129 million YoY mostly due to higher revenue and decreased general and administrative costs.
A constant yearly growth, net cash of $4 billion or net cash per share of 1.04$, and a reduction in operating cost are some of the factors that led to the analyst consensus of “Strong Buy’’ for the stock. 7 analysts set the average price target of $5.14 an upside of 45.82% from the current price target.
The quarter’s loss of $115 million improved by $134 million YoY mostly because of gains in Group Adjusted EBITDA and decreases in share-based compensation and net interest costs. In Q1 2024, the company reported an all-time-high adjusted EBITDA of $62 million driven by a robust performance across the board. Keeping in view the growth potential, the firm raised its adjusted EBITDA guidance for the full year to a range between $250 million and $270 million.
On May 15, 2024 Earnings call, Peter Oey, Chief Financial Officer of Grab Holdings Ltd (NASDAQ: GRAB) highlighted the improvement in EBITDA and stated:
“We continued to drive profitable growth in the first quarter, as we achieved another record Adjusted EBITDA,” said Peter Oey, Chief Financial Officer of Grab. “As we drive growth across our business, we remain focused on continued improvements in profitability as demonstrated by our ninth consecutive quarter of Group Adjusted EBITDA expansion while improving shareholder returns and managing our balance sheet. Pursuant to our $500 million share repurchase program, we have repurchased approximately $97 million worth of Class A ordinary shares in March, and also paid down the remaining $497 million balance of our Term Loan B.”
Although Grab Holdings Ltd (NASDAQ:GRAB) has put forth strong revenue growth and reduced its operational costs, the company is yet not profitable. According to analysts in the transportation industry, the company is on the verge of reaching a breakeven given the quarter-over-quarter performance and is expected to be profitable in 2025.
Furthermore, the company has the potential to expand further in the ever-growing market of Southasia which has a population of over 675 million people.
According to Insider Monkey’s database, 37 hedge funds held stakes in Grab Holdings Ltd (NASDAQ: GRAB) and Tiger Global Management LLC group managed by Chase Coleman and Feroz Dewan has the highest stakes of 66.8 million shares having a value of $209.75 million.
Overall GRAB ranks 1st on our list of best technology penny stocks to buy. While we acknowledge the potential of GRAB as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GRAB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.