The investment world is large and diverse, and penny stocks are one of its more intriguing divisions. Penny stocks are shares of minor companies that trade at low prices, frequently outside larger market exchanges.
As the name implies, these stocks can be purchased for as few cents, providing an accessible entry point for many investors. However, it doesn’t necessarily mean they can’t be your viable investment options. There exist some of the best penny stocks for 2023 you can examine.
They are known for their distinct traits and the buzz they produce.
Naturally, as we approach the start of a new fiscal year, investors worldwide seek the best penny stocks for 2023.
Besides, unlike most other types of stocks, they can be very affordable, sometimes even traded at per unit. However, this affordability is coupled with significant volatility.
The search for the best penny stocks for 2023 will continue. This might be attributed to its low share price and the prospect of large profits, as seen by stories of penny stocks soaring overnight.
However, to scout for the best penny stocks for 2023, there are factors you should take note of.
Factors to Consider When Investing in Best Penny Stocks for 2024
While they have the potential for large returns, they also have obstacles and hazards.
It is critical to comprehend and analyse numerous critical criteria before making an investing decision.
I categorised these factors into 3 categories.
Volatility
Simply put, volatility is the degree of variation in trade prices over a given period.
Potential investors should regard volatility as both an opportunity and a hazard when looking for the best penny stocks for 2023. While volatile stocks may provide enormous returns quickly, the risk of big losses is also there.
Several reasons contribute to penny stocks’ higher-than-average volatility:
- Limited Trading Volume: Penny stocks are known for their low trading volumes, resulting in large price movements even with little trading activity.
- Limited Information: As previously stated, penny stocks frequently lack the kind of transparency seen in more established firms. Because of the information scarcity, price swings can be based on rumours, speculation, or even tiny news updates.
- Reactiveness to Market News: Penny stocks, particularly those in new industries or sectors, can be extremely sensitive to good and negative market changes. A single piece of good or bad news could cause their pricing to rise or fall significantly.
- Emotional Trading: Given the allure of high returns, penny stocks sometimes draw ordinary investors who make trading decisions primarily on emotions rather than careful study. This can exacerbate volatility.
- External Influences: External circumstances or powerful personalities often drive demand for a specific penny stock, resulting in fast price hikes. These rises, however, can be fleeting, culminating in equally quick downturns.
Transparency
In finance, transparency refers to the clarity, accessibility, and dependability of information corporations provide to their stakeholders. This includes financial statements as well as operational updates.
When it comes to investing, especially when looking for the best penny stocks for 2023, a company’s level of transparency becomes critical.
Reporting Standards
Unlike corporations listed on major exchanges, many penny stock companies are not subject to onerous SEC reporting requirements. As a result, investors may be unable to obtain consistent, detailed, or timely information.
Hard-to-Access Information
As many penny stock companies are either new entrants or operate in specialist sectors, reliable information on them may be more difficult to get by than for larger, more established firms.
Influence of Rumors
Given a lack of real data, the penny stock market can become a breeding ground for rumours and speculation. They can cause unreasonable price volatility without clear, factual information to counteract them.
Operational Secrecy
Some penny stock businesses may develop proprietary technology or novel business strategies and choose not to provide complete details to maintain a competitive advantage.
Potential for Misrepresentation
In worst-case scenarios, a lack of transparency can be abused. Companies have issued misleading or erroneous information to attract investors or boost stock prices.
Financial Position Statement
While analysing the best penny stocks for 2023, you should know how to analyse a company’s financial position. It entails careful assessment of the company’s financial statements, including balance sheet, income, and cash flow statement.
The balance sheet analyses the assets, liabilities, and shareholders’ equities. On the other side, an income statement will give you a bigger picture of the revenues, costs of goods sold (COGS), net income, etc. As for the cash flow statement, it reports the summaries of a company’s cash inflows and outflows during a given period.
There are 3 important ratios you can derive from a company’s financial statement. These 3 are crucial for your informed decision-making process.
Return on Equity
ROE measures a company’s profitability by comparing net income to shareholders’ equity. It accurately depicts how well the firm utilises its owners’ equity to generate profits.
A higher ROE suggests that the company creates profit while requiring less capital. While looking for the best penny stocks for 2023, a consistently high ROE may suggest a company’s solid financial success and effective management.
The formula for ROE:
ROE = Net Income / Shareholder’s Equity
Market Cap
Market capitalisation is the sum value of all the shares of stock the company issues. You can calculate it by multiplying a corporation’s shares by the current market price of one share.
When looking for the best penny stocks for 2023, understanding a company’s market cap may provide information regarding its growth potential and risk profile.
The formula for Market Cap:
Market Cap = Current Market Price of Share x Total Outstanding Shares
P/E ratio
The Price-to-Earnings (P/E) ratio compares the current share price of a business to its earnings per share (EPS).
“Why is it important?” You ask.
The ratio can tell you how much the market will pay for a company’s earnings.
As you can already reason, a high P/E ratio indicates that the market expects a business’s future expansion to be strong. Conversely, a low P/E ratio may reflect the opposite.
However, nothing is 100% predictable in the investment world, so it is with the P/E ratio. There could be other unforeseen factors influencing a company’s P/E ratio.
At least, the P/E ratio can provide insight into the market sentiment and value when looking for the best penny stocks for 2023.
The formula for P/E ratio:
P/E Ratio = Current Market Price of Share / Earnings Per Share(EPS)
Top 5 Best Penny Stocks for 2024
1. Nordic American Tankers (NYSE:NAT): Nordic American Tankers owns a fleet of 19 interchangeable Suezmax oil tankers, the majority of which are hired on the spot market. It is considered one of the best oil penny stocks for 2023.
2. Ring Enegry Inc. (NYSE:REI): Ring Energy, Inc. is an energy and fossil fuel exploration company that obtains, investigates, evolves, and generates oil and natural gas.
3. Diana Shipping (NYSE:DSX): Diana Shipping Inc., based in Greece, is a worldwide supplier of shipping transportation services that specialises in leasing and bareboat charter-in of several types of dry bulk carriers, including Newcastlemax, Capesize, and Ultramax vessels.
4. ARC Document Solutions Inc (NYSE:ARC): ARC Document Solutions, Inc. is a technology-based printing company that offers over 10,500 managed print services, including specialised business document printing, bespoke display graphics, office printing equipment management, and digital image services.
5. Ardelyx Inc (NASDAQ:ARDX): Ardelyx, Inc. is a biopharmaceutical firm specialising in pharmaceutical product research, development, and commercialisation.
| Company | P/E Ratio | Market Cap | Return on Equity (ROE) |
| Nordic American Tankers (NYSE:NAT) | 9.71 | 874.86M | 16.90% |
| Ring Enegry Inc. (NYSE:REI) | 2.02 | 374.11M | 27.55% |
| Diana Shipping (NYSE:DSX) | 4.04 | 371.61M | 17.74% |
| ARC Document Solutions Inc (NYSE:ARC) | 12.23 | 146.56M | 6.9% |
| Ardelyx Inc (NASDAQ:ARDX) | -13.10 | 820.25M | -63.67% |
1. Nordic American Tankers (NYSE:NAT)
Company Profile
Nordic American Tankers Limited is a well-known shipping company recognised for its major commercial operations, including acquiring and chartering double-hull tankers. The operational reach of the company includes both Bermuda and international waterways. They enjoy keeping a fleet mostly comprised of Suezmax crude oil tankers.
Financial Ratios and Health
1. Debt to Equity Ratio
Current Ratio: 81%
This means that the corporation owes for each dollar of capital. A higher ratio often suggests greater financial leverage and potential risk. The context, on the other hand, is crucial.
2. Current Assets and Current Liabilities
Current Assets: 138.7M
Current Liabilities: 144.94M
Current Ratio: 0.96
The Nordic American Tankers’ current ratio is 0.96, near 1.0. It means that Nordic American Tankers might struggle to meet their short-term obligations or can be. In the average 5 years, the current ratio of Nordic American Tankers is 1.26, which means it can potentially meet its short-term obligations in the future.
3. Operating Cash Flow
The operating cash flow for Nordic American Tankers is 0.35. Although the operating cash flow is lower than 50%, the company is still efficiently making sales into cash.
2. Ring Enegry Inc. (NYSE:REI)
Company Profile
Ring Energy, Inc. is an independent exploration and production company established in Texas. In Texas and New Mexico, the Company focuses on petroleum and shale gas exploitation, extraction, formation, and investigation.
Its primary exploration activities are focused on the fossil fuel and liquids-rich manufacturing shapes of the Northwest Shelf, Central Basin Platform, and Delaware Basin, all of which are part of the Permian Basin in Texas and New Mexico.
Financial Ratios and Health
1. Debt to Equity Ratio
Current Ratio: 74%
This means the corporation has in debt for every dollar of equity. A larger ratio frequently indicates more financial leverage and potential risk. The context, though, is critical.
2. Current Assets and Current Liabilities
Current Assets: 55.11M
Current Liabilities: 100.95M
Current Ratio: 0.54
The current ratio of Ring Energy, Inc is 0.54, which means that Ring Energy, Inc might struggle to meet its short-term obligation. In the average 5 years, the current ratio of Ring Energy, Inc is 1.42, which means it can meet its short-term obligations in the future.
3. Operating Cash Flow
Ring Energy, Inc. has an operating cash flow of 0.42.
3. Diana Shipping (NYSE:DSX)
Company Profile
Diana Shipping Inc provides shipping transportation. The company handles an inventory of bulk cargo ships through its affiliates, including Panamax, Kamsarmax, Post-Panamax, Capesize, and Newcastlemax vessels.
The corporation uses this fleet to deliver various products such as coal, iron ore, and grains. It transports smaller bulks like steel, cement, and fertilisers using its dry bulk carrier boats.
The principal source of revenue generation is vessel operation. The services the vessels provide are comparable, and they all operate in the same economic environment.
Financial Ratios and Health
1. Debt to Equity Ratio
Current Ratio: 138%
The result is that the business owes for each dollar of capital. A higher ratio often suggests greater financial leverage and potential risk. You should not overlook the context as well.
2. Current Assets and Current Liabilities
Current Assets: 140.56M
Current Liabilities: 131.57M
Current Ratio: 1.06
The current ratio of Diana Shipping Inc is 1.06, which means that Diana Shipping Inc can meet its short-term obligation. In the average 5 years, the current ratio of Diana Shipping Inc is 1.31, which means it has a well control on the current ratio.
3. Operating Cash Flow
Diana Shipping Inc has an operating cash flow of 1.18. The higher operating cash flow is preferable to the lower, indicating that the company earned greater funds in a specific time frame than it needed to pay for its current liabilities.
4. ARC Document Solutions Inc (NYSE:ARC)
Company Profile
ARC Document Solutions Inc is a global document solutions company. The company’s service offerings include managed print services (MPS), offshore solutions, conserve and information management (AIM), specialised colour publishing, accessible online management of document solutions, and hardware and supply sales.
Its goods are used in various industries, such as architecture, engineering, and construction. Its main objective is to deliver an entire document service ecosystem at its clients’ workplaces and project sites.
Besides, it maintains offshore service centres, allowing clients to retain documents and proprietary rights in an accessible virtual archive hosted in the cloud.
Financial Ratios and Health
1. Debt to Equity Ratio
Current Ratio: 91%
It implies that the corporation owes for each of capital.
2. Current Assets and Current Liabilities
Current Assets: 106.36M
Current Liabilities: 66.83M
Current Ratio: 1.59
The current ratio of ARC Document Solutions Inc is 1.59, which means that ARC Document Solutions Inc is not struggling to meet its short-term obligation. In the average 5 years, the current ratio of ARC Document Solutions Inc is 1.59, which means it has a stable current ratio.
3. Operating Cash Flow
Operating Cash Flow: 0.15
ARC Document Solutions Inc has an operating cash flow of 0.15. Even though the operating cash flow is substantially lower than 50%, the company is effectively converting revenues into cash.
5. Ardelyx Inc (NASDAQ:ARDX)
Company Profile
Ardelyx Inc is a pharmaceutical company that focuses on creating, manufacturing, and selling molecular and polymeric medicines for treating gastrointestinal and cardiorenal diseases.
The company has created its platform for pharmaceutical discovery and design. Tenapanor, its principal pharmaceutical applicant, aims to reduce dietary sodium and phosphorus ingestion in dialysis patients to treat kidney failure, irritable bowel syndrome with constipation, and high phosphate levels.
Financial Ratios and Health
1. Debt to Equity Ratio
Current Ratio: 72%
This indicates that the corporation owes for each of capital.
2. Current Assets and Current Liabilities
Current Assets: 162.12
Current Liabilities: 61.69
Current Ratio: 2.54
The current ratio of Ardelyx Inc is 2.54, which means that Ardelyx Inc is not struggling to meet its short-term obligation. In the average 5 years, the current ratio of Ardelyx Inc is 6.6, which means it can potentially increase its current ratio.
3. Operating Cash Flow
Operating Cash Flow: -0.23
The operating cash flow for Ardelyx Inc is -0.23. Although the operating cash flow is negative, the company is still efficiently making sales into cash. The negative operating cash flow might mean the company needs money from investments and financing to make up the difference.
Conclusion
Penny stocks, which often trade for less than per share, attract investors with high-risk tolerances. These stocks entice speculative traders with the potential of huge exponential development, giving opportunities to multiply their capital significantly.
This idea of easy progress, however, should be addressed with caution. Penny stocks have the potential to be exceedingly volatile and unpredictable. Hence, I compiled this list of the best penny stocks of 2023 for your reference.
Before you dive straight into investing in these best penny stocks of 2023, you should still undertake extensive research. As mentioned, noting in investment is 100% certain.
Most importantly, invest with caution!
