There are ample opportunities among undiscovered penny stocks because there are two ways that shares can move higher. First, via price discovery. Undiscovered names, especially in the OTC market, can be undervalued and then re-rated as investors bid them up. Second, these small companies often see major improvements in performance. This, too, can be a major driver for outsized gains.
Elite Pharmaceuticals was one of my undiscovered penny stocks sit. In 2022, it was around 3 cents per share, 6 times earnings. Today, it’s 19 cents per share, 10.8 times earnings. So, what are some examples of high-potential undiscovered penny stocks right? Take a look at these seven. Each one could generate tremendous gains in the coming years.
Butler National (BUKS)
Butler National (OTCMKTS:BUKS) is an obscure stock I’ve discussed before in past coverage of penny stocks. While primarily an aerospace products and services company, Butler also owns a casino (Boot Hill) in Dodge City, Kansas.
As I argued last October, the primary appeal with BUKS stock is its low valuation, coupled with recent developments that could help shake off its “value trap” status. Shares are sold for just 7.7 times forward earnings. Stocks in both aerospace and gaming, which are comparable, trade at multiples of at least double this figure.
Even if the company does not get bought out, something else could serve as a catalyst. Last year’s management changes are set to both reduce overhead expenses, and perhaps result in the company making other moves (such as a stock market up-listing, or a spin-off of the casino business) that may help Butler escape obscurity, and to unlock shareholder value.
California Nanotechnologies (CANOF)
California Nanotechnologies (OTCMKTS:CANOF), also known as Calnano, is a provider of nanocrystalline materials for R&D and industrial use. The company’s shares have taken off in the past year (rising by more than 160%), but price discovery may not be over just yet.
Despite the significant increase in CANOF stock, it still trades at a reasonable valuation (11.7 times earnings). More importantly, as seen in Calnano’s recent investor presentation, expected growth for one of the company’s key markets (the spark plasma sintering market), suggests that a high level of growth may continue.
With this, CANOF may be well-positioned to both rise in line with earnings growth, as well as experience an expansion of its earnings multiple. In time, Calnano (which also trades in Canada on the TSX Venture exchange) could decide to move its U.S. stock market listing from the OTC market, to a major exchange.
Comstock Holding (CHCI)
Investors looking to make a contrarian wager on commercial real estate have many choices, but one they may want to consider is Comstock Holding (NASDAQ:CHCI).
Originally in the homebuilding business, in more recent years Comstock has become a commercial property management firm, managing primarily mixed-use developments in the Washington, D.C. metropolitan area.
CHCI stock has held steady, despite the continued worries about whether the commercial real estate market downturn will worsen or stabilize from here. This share price steadiness more than makes sense. Comstock’s revenue and earnings keep growing, as seen from the company’s Q3 2023 results.
Still, the market still seems to ignore this, assigning CHCI a valuation (6.7 times earnings) well below that of other publicly-traded property management companies (which trades for 10-15 times earnings). Greater awareness of Comstock, plus normalization of conditions in the commercial property space, could help to bridge this valuation gap.
Greystone Logistics (GLGI)
Greystone Logistics (OTCMKTS:GLGI) may be up by 150% over the past year, but it’s arguably still one of the undiscovered penny stocks. At least, based on this plastic pallet manufacturer’s current valuation.
Yes, it is misleading to use the company’s trailing twelve month earnings to value the stock.
Greystone’s earnings last year were skewed by a one-time event (the receipt of a massive pandemic-related refundable tax credit). However, based on more recent results, such as earnings of 3 cents per share last quarter, it’s clear cooling inflation and rebounding demand are helping to improve margins.
If this keeps playing out, GLGI stock could rise, as it becomes clear that the company is once again consistently-profitable thanks to its operating business, not because of tax credits. This could result in a re-rating, enabling this already strong-performing penny stock to add to its gains.
Mama’s Creations (MAMA)
Admittedly, it may be a stretch to call Mama’s Creations (NASDAQ:MAMA) shares undiscovered.
In recent years, this purveyor of “heat and serve” foods has already experienced a high level of growth, as well as an outsized amount of price appreciation for its formerly OTC-listed, now NASDAQ-listed shares.
As recently as late 2022, MAMA stock traded for just over $1 per share. Today, it trades for $4.50 per share. Yet while the stock is up by a tremendous amount already, the potential is still there for shares to keep growing at a slower but still above-average pace.
Per sell-side forecasts, earnings could grow by as much as 43.75% this fiscal year (ending January 2025). While priced already like a growth stock at 26.7 times forward earnings, continued growth could help sustain this valuation, with shares moving higher in tandem with increased earnings.
Power Solutions International (PSIX)
If searching for deep value plays among undiscovered penny stocks, consider Power Solutions International (OTCMKTS:PSIX). Shares in this manufacturer of engines and power systems trade for only 2 times forward earnings.
Yes, there’s somewhat of a rationale for the super-low valuation of PSIX stock. As InvestorPlace’s Omor Ibne Ehsan discussed last November, Power Solutions International has in the past been unprofitable, reporting high levels of cash burn. This may mean investors are still skeptical about future operating performance.
Power Solutions could continue to handily beat expectations with subsequent quarterly results. Sell side forecasts call for earnings of $1.22 per share during 2024. This may only represent 14% earnings growth compared to 2023.
However, as this would also signal that the company has achieved consistent profitability, this may assuage investor concerns, resulting in (as Ehsan also argued previously), a major re-rating to the upside for shares.
At the same time I “discovered” ELTP, I also discovered medical technology company Vaso (OTCMKTS:VASO). Since then, many other investors have discovered it as well.
This, plus enormous improvements in Vaso’s profitability, have resulted in a high amount of price appreciation for shares.
Trading for just over a dime in 2022, VASO stock today trades for around 28 cents per share. However, even after this big run-up, don’t assume you have missed the boat. In fact, Vaso could pretty soon become even more greatly followed by the market.
Merging with Achari, in effect a market uplisting and reverse split, could bring about a fresh wave of price discovery. Trading for just 4 times earnings, shares could receive a big re-rating after the SPAC merger closes.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.