The traditional definition for penny stocks is those securities trading for $5 or less. However, there are many alternative definitions out there.
For example, the Nasdaq website defines penny stocks as those equities trading over-the-counter for $1 or less. So, by this definition, a penny stock trading for less than $1 on the NYSE or Nasdaq doesn’t qualify.
The Securities and Exchange Commission suggests that a penny stock is a company with less than $300 million in market capitalization.
The last time I wrote about penny stocks for InvestorPlace in January, I used the traditional $5 criteria for qualification. All seven of my stock picks have gotten hammered in 2022. That should tell you how risky it is to buy penny stocks.
In today’s world, where fractional shares are commonplace, more than ever, quality is far more critical than price.
But for whatever reason, like a lottery, readers love to dream about buying $2-penny stocks that rocket to $100, creating massive profits.
It rarely happens.
So, I’ll once again use the traditional $5 ceiling, a market capitalization of $300 million or less, and the caveat that they will only qualify for inclusion if they’re profitable.
This ought to be fun.
Destination XL Group
Liberty Tripadvisor Holdings
First Eagle Alternative Capital BDC
Destination XL Group (DXLG)
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Destination XL Group (NASDAQ:DXLG) operates big and tall men’s clothing stores and e-commerce sites under the DXL and Casual Male XL banners. Like many retailers, the pandemic was as big a challenge as the company’s ever faced.
The company’s share price has come a long way since the beginning of the pandemic. In March 2020, DXLG stock traded at around 65 cents. In November 2021, it got as high as $8.99. Down 28% through Aug. 19, now could be an excellent time to consider its stock.
In Q1 2022, Destination XL reported 14.5% revenue growth to $127.7 million. Its same-store sales growth was very healthy, up 19.5% year-over-year. On the bottom line, it earned $13.4 million, 54.0% higher than a year ago. It has now delivered five consecutive quarters of revenue and earnings growth.
It finished the first quarter with 286 stores, with DXL accounting for 235 and Casual Male for the remaining 51. In 2022, it plans to convert four Casual Male stores to DXL. It would not surprise me if the Casual Male name disappeared entirely over the next few years.
In the quarter, its e-commerce business grew revenues by 16.7% to $39 million. They account for 30.6% of its overall revenue. It expects $520 million in sales in 2022 at the midpoint of its guidance.
DXL’s earnings yield is very high at 20.7%.
Liberty Tripadvisor Holdings (LTRPA)
Source: Mano Kors / Shutterstock.com
Liberty Tripadvisor Holdings (NASDAQ:LTRPA) is one of the many businesses controlled by John Malone and Greg Maffei. It was spun-off off from Liberty Interactive, now known as Qurate Retail (NASDAQ:QRTEA), in August 2014. For every share held in Liberty Interactive, shareholders received one LTRPA share.
When the spinoff occurred on Aug. 27, 2014, one Liberty Interactive share was worth $37.91, and one LTRPA share was $36.32. In eight years, the value of the two shares has fallen by 94% to $4.39 from $74.23.
Covid-19 hit, and revenues fell by 61%, from $1.56 billion in 2019 to $604 million in 2020. In 2021, they rebounded by 49% to $902 million. However, there’ve been no operating profits since 2018.
On July 27, Tripadvisor got a written notice from Nasdaq warning the company that it no longer complied with the minimum bid price of $1. It has until Jan. 23, 2023, to get back in compliance by trading for 10 consecutive days above the $1 closing bid price.
In the first half of 2022, Tripadvisor made 52 cents a share on $679 million in revenue. The top and bottom lines significantly improved from the first six months of 2021.
Who knows if it can keep it going through the end of the year? I know that both its Viator (book experiences) and TheFork (book dinner reservations) operating segments are becoming much more significant contributors to Tripadvisor’s overall revenue.
If they ever made money, its delisting concern would disappear.
First Eagle Alternative Capital BDC (FCRD)
Source: wsf-s / Shutterstock.com
It’s been a long time since I’ve written about a business development company (or BDC).
First Eagle Alternative Capital BDC (NASDAQ:FCRD) is down more than 27% year-t0-date. That’s more than 4x the 6% loss for the VanEck BDC Income ETF (NYSEARCA:BIZD), which invests in 25 BDCs. First Eagle isn’t one of them.
In Feb. 202o, First Eagle Investment Management LLC completed its acquisition of alternative credit manager THL Credit Advisors LLC. First Eagle combined its private credit platform with THL’s to form First Eagle Alternative Credit (FEAC).
First Eagle Alternative Credit rebranded the THL Credit BDC to First Eagle Alternative Capital BDC in August 2020. FEAC externally manages it. The BDC provides first and second lien secured loans to middle market private equity sponsors and companies.
The BDC’s strategy is to provide debt and equity to North American public and private companies with annual revenues of $25 million to $500 million. In July, FCRD announced that it provided a $20 million term loan to Nicole Miller, a global fashion and lifestyle brand.
In July, it closed its fifth direct lending fund, raising more than $1 billion in capital, including leverage. Over the past 12 months, it’s raised more than $2.2 billion for its direct lending business.
Since its predecessor’s founding in 2007, it’s provided more than $6.5 billion in loans for middle-market businesses.
If income is your thing, it currently yields 13.4% based on a quarterly dividend of $0.11 a share. Get paid to wait for FCRD to move back over $4.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Will Ashworth did not have (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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.