Are These Robinhood Penny Stocks Too Risky Right Now?
When you think of people trading penny stocks, what comes to mind? Is it someone in a suit on the phone, yelling out numbers to a client? Or is it someone in their pajamas looking at a smart-phone, tapping it furiously?
While the movies like Wolf of Wall Street might make it seem as though pro traders flipping penny stocks have slicked-back hair and loafers as a requirement, 2020 has taught us differently. As I’ve discussed in the past, millions of new traders popped up during the early days of the pandemic. Partly due to stay-at-home orders and lay-offs, many have found day trading as a means of making extra money. Some have even made it their new, full-time job.
One of the most frequently downloaded app, now used by millions of traders, is Robinhood. Though penny stocks are limited on the app to just NYSE and Nasdaq names, this hasn’t stopped Robinhooders from buying up these cheap stocks. There’s almost a ferociousness in the market’s sentiment in 2021 fueled by sheer bullish emotion. And who can blame them?
Trading V.S. Investing In Penny Stocks
Most of them came into the market when it had erased all gains from 2017-2020 at the time. It was a redo of the last 3 years, and all that most of these traders have seen is “stonks only go up”. While I’m sure there will be periods where that isn’t the case, overall, you can’t blame them for thinking this. We talked about this idea earlier today. It’s almost as if traders in the stock market today only need a small glimmer of speculative hope, and momentum explodes.
Look at Bed GameStop (NYSE: GME) today. Not only did it catch a massive short squeeze earlier this week, but more big names jumped on the train. Furthermore, late-afternoon commentary from none other than Elon Musk added serious fuel to the fire sending GME even higher after the market closed. There was no other fundamental event suggesting GameStop should be valued at these levels.
But the technical side of things disagreed in a major way; hence the short squeezed short-squeeze. Now traders are looking for the next hot stock to watch. Will penny stocks be on that list? Here are four that can be bought for under $4. Just because they’re “cheap,” are they worth buying?
Robinhood Penny Stocks To Buy [or avoid]
- Drive Shack Inc. (NYSE: DS)
- Waitr Holdings Inc. (NASDAQ: WTRH)
- Express Inc. (NYSE: EXPR)
Drive Shack Inc.
Probably one of the hardest-hit industries during the pandemic has been entertainment in its purest sense. Anything requiring group settings, physical engagement, or general gatherings have all but disappeared. Movie theaters, sporting events, etc. They’ve all been heavily restricted due to social distancing rules. But what about golf? Well, if you’re a company like Drive Shack or Top Golf, yes.
The cross-over between sports-bar and outdoor entertainment culminates in businesses like these. Drive Shack, in particular, has been the center of attention for the market. The stock has managed to move from just $1.10 in October to highs of $3.39 in December. Following a consolidation period, the penny stock has begun popping once again this week.
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One of the recent catalysts to take note of came on Tuesday. Drive Shack announced a partnership with golf superstar Rory McIlroy on its entertainment golf brand. “Puttery” is the company’s new indoor, small format entertainment experience featuring high-tech mini golf as well as its signature food and beverage offerings. This was one of the initiatives that the company was working on last year. Drive Shack expects to open its first Puttery location this summer, with plans to open an additional five Puttery locations by the end of 2021 and 10 additional locations by the end of 2022.
Waitr Holdings Inc.
Waitr is a company that we’ve followed for over a year now. It was originally a speculative momentum focus amid happenings in companies like Uber. We first discovered Waitr back in November of 2019. At the time, there were so many more questions than answers. From around $0.30 on November 18th, 2019, to highs of $5.85 on August 8th, 2020, the penny stock rallied 1,850%.
Since August, Waitr shares have traded between $2.70 and $3.70 for the most part. There’ve been a few swings above and below those thresholds. In general, however, this is what we see as the case between September and January. There’s been a recent uptick in the trading momentum over the last few sessions. But it hasn’t been accompanied by any news or filings. However, speculation may be playing a bigger role right now.
In particular, reopening optimism has lit a fire under names like DoorDash and GrubHub. Analysts have also grown bullish on WTRH. The last two ratings came from B. Riley and Craig Hallum. Both have Buys on Waitr as well as $7 price targets. In light of reopening excitement, will WTRH stock be on the watch list in 2021?
Express Inc.
Another industry hit hard by the pandemic was retail. Not so much online retail because, as we know, companies like Amazon flourished in 2020. But the brick and mortar space was slammed. Again, social distancing, limits on groups, and the like have caused many retailers to close up shop. The ones that’ve been able to weather this storm better have been those that took up an eCommerce model as well. Express is one of these companies, and it has gained the spotlight over the last few months.
Fundamentally, the company has focused on its balance sheet and liquidity. Similar to Waitr, analysts have also begun to get more bullish on the stock. B. Riley boosted its $1 price target to $1.50 this month. The firm currently has a Neutral rating on the stock. Last month we discussed this stock as a speculative case if the economy begins turning around and if vaccines begin to hit the market.
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Express is also one of the more heavily shorted stocks in the discussion. These have become the center of attention as stocks like GameStop and others have experienced epic short-squeezes. With more optimism on reopening stocks along with the market’s penchant for heavily-sold-into stocks, will EXPR be one to watch before February?
Should You Buy Cheap Penny Stocks?
This is a great question to ask yourself right now. If you understand the market dynamics and what may be driving momentum in certain names, penny stocks might be right for you. However, if you’re skittish, no matter what trade you enter or don’t feel comfortable when the market is volatile, it may be time to step back and take time to learn. There are plenty of platforms that allow for things like paper trading to hone your skills while you learn how to day trade. At the end of the day, it’s up to you to decide if cheap stocks are right for you.
