Reddit Penny Stocks Can Be High-Flyers But Are They Worth The Risk
It’s no secret that 2021 has been the Year of Reddit Penny Stocks. More specifically, most of the stocks on Reddit are looked at by the mainstream as momentum-fueled runners that may or may not see lasting uptrends. But GameStop (NYSE: GME) and the short-squeeze breakout that ensued after Redditors rallied behind it has changed the makeup of the stock market as we know it.
Regardless of what has unfolded since GME and other popular stocks on Reddit showed, social media could have a massive impact on trading trends. What’s more, it also exposed some of the underlying risks involved. By far, penny stocks have demonstrated why it’s important to have a proper education and know how to day trade in the first place. It’s clearly easy to follow the leader and make an attempt at grabbing onto the coattails of a big move. But what about identifying the trend before it blows up as a massive “pump” or social media-fueled rally?
What Are Penny Stocks?
Understanding what penny stocks are will help you grasp how to trade them, in my opinion. According to the Securities & Exchange Commission, the basic definition of a penny stock is one that trades for less than $5, according to the Securities & Exchange Commission. So even the slightest move can equate to much larger gains in comparison to blue-chip stocks.
For instance, if you’ve got a stock trading for $1 and one trading for $100, it’s going to only take a 10 cent move to return 10% on the $1 stock. The same move for the higher-priced company won’t make much of a dent on your P & L.
Since these cheap stocks can move so quickly, they’ve become the target of numerous social media breakouts. Call them “pumps” or call them “touts,” whichever the case, the same trend is usually seen. Small groups of traders begin to look into a company, find some interesting information, spread it across social media outlets like TikTok, Reddit, Facebook, Twitter, etc., in hopes that other traders will agree with their thesis. When the hype reaches a feverish pitch, at least some consolidation is seen; sometimes, it even results in a crushing blow to the stock & anyone holding shares above a certain level.
Since many of these penny stocks are shares of companies in very early stages, the likelihood of recovery can be slim in many cases. So you must do your own research with any stock you find on social media or anywhere else, for that matter.
Are Penny Stocks On Reddit Worth The Risk?
This is where the question comes up, “Are penny stocks worth the risk?” Quite honestly, risk has everything to do with your own trading style and how comfortable you are with volatility. No matter your risk tolerance, remember that no one ever went broke by taking a profit. If a stock is up and has reached a profit target, it’s not a bad idea to secure some cash. Why you may ask?
Let’s take a look at a recently touted Reddit penny stock that we actually warned caution on this week. 88 Energy (OTC: EEENF) was heavily touted online and ended up running from a penny to highs of nearly 10 cents; that’s a move of over 850%. So why wouldn’t you take some money off the table? “HODL-ing” or saying you’ve got “diamond hands” in such a low-priced stock only ends up hurting you as a trader in the end. Missing out on profits or, worse, losing your money as a stock drops is a reality.
April 6th is a clear example of this with EEENF. Overnight, the penny stock dropped over 80%. Our article expressed that this was a heavily hyped-up stock and could be a situation to exercise caution in light of the huge move it made without many big fundamental events.
Why Is EEENF Down Today?
News came out in the morning suggesting that despite indications of several potential pay zones identified, “operational issues prevent hydrocarbon samples from two most prospective zones.”
The company also said that “It is now too late in the season to initiate flow testing operations, and the forward program will consist of plugging the well. The well may be re-entered in the future, if warranted, in order to drill a side track and conduct a flow test.”
You can’t predict the news, and you can’t predict things like exact earnings figures or phase trial results, for example. This is why it’s important to profit along the way. Can EEENF bounce? Time will tell, but the press release suggests that the “time” could be much longer than the “hype” on social media suggested.
Are There Other Penny Stocks On Reddit To Watch Right Now?
This obviously doesn’t mean that all penny stocks on Reddit and other social media outlets are bad. But I will stress that research is very important. Knowing how to enter, how to identify profit targets, and being comfortable taking profit off the table is a real skill to master. Keeping emotions at a minimum is a must.
Regardless of the fall-out from EEENF stock, there are several other Reddit penny stocks to watch.
Zomedica Corp. (NYSE: ZOM)
Zomedica has been at the center of attention for traders on social media ever since last year. The initial “hype” surrounded the pending commercial launch of its TRUFORMA animal diagnostic device. The hype was boosted by a video that surfaced, including Carole Baskin of Tiger King, who mentioned Zomedica and TRUFORMA by name.
It would ultimately come to light that it was part of a paid-for Cameo app post. Nevertheless, it didn’t subdue momentum one bit. This also lead to ZOM stock getting wrapped up into the Reddit/short-squeeze hype earlier this year.
While the penny stock has slid for the last few weeks, its pullback is nowhere near the same as EEENF, for example. What’s more, the company reported the first commercial sales of its TRUFORMA device last month. This has also helped give a nice boost to market sentiment. With more testing panels expected to be released in the near term, there could be many other things to follow as Zomedica transitions from “development” to “commercial stage.”
Atari (OTC: PONGF)
I don’t think much introduction is needed for Atari. It’s one of the original “godfathers” of gaming. This year, however, the launch of its new gaming console has attracted more than the gaming community to the company. This new trend in NFT penny stocks, for example, has PONGF stock a frequently discussed topic on social media outlets like Reddit and Twitter.
The company partnered with Bondly to create gaming NFTs. Together they plan on debuting a full line of Atari Metaverse NFTs. This will include tokens for gaming, music, and more. The CEO of the company, Frederic Chesnais, stated this about the partnership, “Our collaboration with Bondly is absolutely integral to the success of the upcoming collections of NFTs and of the Atari metaverse.”
You’ve also got the recent partnership extension between Atari and Chain Games. Chain Games is integrating the Atari Token into their existing games. With a strong focus on NFTs right now and the pending IPO of cryptocurrency company, CoinBase, there could be a few things to keep in mind when it comes to Atari. Keep in mind, just like EEENF, there’s been a lot of hype surrounding Atari, and the stock has climbed much higher this year.
Genius Brands International Inc. (NASDAQ: GNUS)
Another popular name on the list of penny stocks on Reddit is Genius Brands. It has become infamous at this point and well-known for short-term breakouts and breakdowns. Overall, GNUS stock has actually managed to sustain a longer-term uptrend, albeit very slow, over the last few months. Since the end of August 2020, shares have steadily climbed from $1.11 to highs last month of $3.12. But after its last update, the market was a bit disheartened.
Thanks to its branding relationships with Marvel and the Stan Lee brand, the hopes were high that it would be a great candidate for an NFT stock. The company established a collaboration with Marvel Studios for Stan Lee Content. Furthermore, in a corporate update, CEO Andy Heyward mentioned, “With the recent excitement surrounding NFTs (non-fungible tokens), many companies have come to us with proposals to enter that space. Genius would be a perfect company to flourish in NFTs.”
With this, speculation has once again begun focusing on the potential outcome of an NFT deal. Whether or not that comes to fruition, it is important to note the higher level of hype surrounding NFT penny stocks right now.