Penny stocks, or equities trading at under $5 a share, are typically a no-go area for most investors. These low-priced stocks are generally too risky to consider owning because they frequently have low liquidity, are prone to wild price swings, sport outsize short-seller positions, and, more often than not, have poor underlying fundamentals. Still, the fact remains that penny stocks have comprised a disproportionate number of the best-performing stocks over the last decade.
Capital-intensive commercial operations in the areas of biotechnology, healthcare, and technology can force fledgling companies to rely heavily on public offerings to get off the ground. These repeated bouts of shareholder dilution, in turn, often push a company's share price into penny stock territory.
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The silver lining to this story is that the small group of companies that actually use these early public offerings to build successful businesses often yield enormous returns for shareholders. Armed with this insight, risk-tolerant investors might want to take a deeper look at Bionano Genomics (BNGO 6.06%) and OrganiGram Holdings (OGI 2.90%) right now.
Although these two penny healthcare stocks have been going through a brutal period in the market of late, both companies have been busy building out a solid foundation for long-term success. Here's why these two low-priced equities could turn out to be big winners over the new few years.
Bionano Genomics: A potential titan of genome mapping
Over the past 12 months, Bionano Genomics stock has lost a staggering 58% of its value. Worse still, the genome mapping specialist's shares are down by over 86% from their three-year high right now.
What went wrong? The answer is nothing went wrong from a business perspective. Bionano's flagship optical genome mapping system, known as Saphyr, has been steadily gobbling up market share, and the company's clinical services segment has been performing well of late. In fact, the biotech posted a record level of quarterly revenue in its most recent financial results. The long and short of it is that Bionano's novel genome mapping platform is gaining traction in the market.
Why did the market punish Bionano's stock so severely in 2022? The key reason is Bionano's prior valuation was a tad too rich based on the state of play in optical genome mapping. This fairly new bio-market was only worth a little over $100 million in total sales last year, reflecting the early-stage nature of this groundbreaking tech. As a result, Bionano's shares were trading at over 140 times forward-looking sales at their peak back in January 2021. Investors, in short, clearly got ahead of themselves on this one.
However, Bionano's stunning pullback in 2022 could turn out to be an incredible buying opportunity for long-term investors. There's no doubt that optical genome mapping will be an enormous market (several billion in annual sales) by the end of the decade and Bionano already sports a top-tier platform in this high-growth space. The bottom line is that this bio-penny stock could deliver life-changing returns for investors willing to buy and hold for the remainder of the decade.
OrganiGram Holdings: A craft cannabis play
While most Canadian cannabis companies have been struggling of late, OrganiGram has been a clear outlier. The Moncton, New Brunswick-based craft cannabis cultivator has been ripping market share away from industry titans such as Aurora Cannabis, Canopy Growth, and Tilray Brands in both the dried flower and edible product categories. At last count, OrganiGram now sports the largest share of the dried flower space in Canada, and it owns the third-largest chunk of the all-important gummy segment in its domestic market, according to a recent market analysis by Hifyre.
Even so, OrganiGram's shares have still lost an eye-catching 57.6% of their value over the past 12 months. OrganiGram's stock has arguably been unfairly punished by the market in response to the dour outlook for the industry's most visible names. The lowdown is that OrganiGram stock is now trading at a paltry 2.2 times fiscal 2023 projected sales. What's more, the company sports one of the strongest balance sheets within its peer group, with negligible levels of debt and $97 million (in USD) in cash and cash equivalents as of May 31.
The big picture is that OrganiGram has already proven itself to be an elite cannabis cultivator and a shrewd operator to boot. As a result, this craft cannabis company ought to eventually grow into one of the field's dominant players by the middle of the decade. OrganiGram thus has a shot at parabolic levels of sales growth in the years to come. Aggressive investors, in turn, may want to take a flier on this penny cannabis stock soon.
