What Are Penny Stocks?
Penny stocks are shares of stock that trade for less than $5 per share. They are considered high-risk investments due to the small size of the issuing companies and the potential for volatility. While some penny stocks can offer significant returns, investors should be cautious and do thorough research before investing. Many cheap stocks have experienced significant losses due to fraudulent companies or market manipulation. The most important question is can these stocks recover?
Assuming all other factors remain constant, the answer is yes. But it depends on various factors, and recovery doesn’t happen overnight. For instance, companies such as Carvana (NYSE: NIO) took almost a year to fully recover from a slump to lows of nearly $1 per share a few years ago. Similarly, during the pandemic, other companies like AMC Entertainment (NYSE: AMC) and GameStop (NYSE: GME) were among the penny stocks that had fallen on hard times.
However, as we now know, the “Ape movement” eventually triggered their recoveries, though brief. But the question remains: are there companies that may still be at risk of becoming penny stocks? In recent months, we have published articles discussing several such companies:
- Carvana Co. (NYSE: CVNA)
- Tattooed Chef (NASDAQ: TTCF)
- Robinhood Markets Inc. (NASDAQ: HOOD)
- DraftKings Inc. (NASDAQ: DKNG)
- Tattooed Chef (NASDAQ: TTCF)
- fuboTV Inc. (NASDAQ: FUBO)
- Canopy Growth Corp. (NASDAQ: CGC)
- Virgin Galactic (NYSE: SPCE)
- SoFi Technologies (NASDAQ: SOFI)
- Traeger Grills (NYSE: COOK)
- PLBY Group, Inc. (NASDAQ: PLBY)
- Snap, Inc. (NYSE: SNAP)
Many of these companies have eventually reached penny stock status, while others have managed to maintain support above the $5 mark (for now). Today we look at one of the popular bank stocks running into big trouble this week, SVB Financial (NASDAQ: SIVB), as shares continue making new lows this year. Some are asking: Will SIVB stock become a penny stock in 2023?
Will SIVB Stock Become A Penny Stock?
At the time of this article, shares of SVB Financial stock were hovering around $39 as the stock was halted during premarket trading on March 10th. Like other companies on the previously posted list of penny stocks, SIVB has been scrutinized for multiple reasons. One has to do with its surprise decision to sell most of its bond portfolio at a loss.
In addition, SIVB stock slipped further after the company announced an attempt to raise billions in funding as major investors were rumored to have advised clients to pull their money from the bank. Founders Fund, co-founded by Peter Thiel, had advised companies to do just that, according to a report from Bloomberg News.
The company was one of the best-performing bank stocks on Wall Street in 2021 as SIVB stock reached highs of over $760. From those highs of $763.22 to recent premarket levels (lows of $33.40), SVB stock has dropped nearly 96%.
Now, reports are surfacing that the company could not raise more capital. What’s going on with SVB Financial now? The company is reportedly looking to sell itself entirely. Famed investor Bill Ackman said in a Tweet responding to the situation:
The failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.
SIVB Stock Forecast
The question now is, what is the market’s SIVB stock forecast? As you can imagine, Wall Street isn’t optimistic right now. SVB said in a letter on Wednesday that it sold “substantially all” of its available-for-sale securities, made up of mainly Treasuries.
Morgan Stanley analysts explained in a note that “Falling VC funding activity and elevated cash burn are idiosyncratic pressures for SIVB’s clients, driving a decline in total client funds and on-balance-sheet deposits for SIVB…That said, we have always believed that SIVB has more than enough liquidity to fund deposit outflows related to venture capital client cash burn.”
As this story develops, we will continue to report updates. Right now, this is where other stock market analysts sit on SIVB stock:
- Raymond James SIVB Stock Forecast: Market Perform
- Wolfe Research SIVB Stock Forecast: Peer Perform
- Truist Financial SIVB Stock Forecast: Hold, $100 price target
- JP Morgan SIVB Stock Forecast: Overweight, $270 price target
- Piper Sandler SIVB Stock Forecast: Buy, $195 price target
- Wedbush SIVB Stock Forecast: Neutral, $200 price target
Clearly, analysts aren’t suspecting SIVB stock to breach the $5 mark based on recent targets. However, it’s also worth noting that share prices are well-below even the lowest price target on SVB Financial stock right now.
Should You Buy SIVB Stock Right Now?
Shares of SIVB stock were trading around $280 earlier this week. Within a day, they dropped over $170 to lows of $100. The premarket session on Friday saw the stock’s price plummet another $66 to lows of nearly $33. Another drop like that, and we’re talking about SIVB well into the sub-$5 range. Now, will that actually happen? Based on analysts’ forecasts, most are not expecting SIVB to become a penny stock. As the stock remains halted, the market continues speculating on the outcome of its efforts to sell the company.
This recent shock to the market comes after the latest round of earnings showed mixed results. The company missed earnings per share estimates and narrowly beat revenue expectations. Management also said that “client cash burn and the pace of VC investment decline both moderated” during the quarter. The company also said it sees deposit balances dipping by “mid-single digits” from 2022, with interest income declining in the “high teens.”
Just a few weeks after SVB announced the addition of a new Senior Managing Director of the firm’s Technology Investment Banking team, Scott Silvergate, who said, “SVB Securities offers unique sector specialization alongside a full spectrum of capital and banking solutions in partnership with the commercial bank’s technology sector expertise.”
How potential suitors view this news is to be seen, and whether this plays a factor in their purchase price will likely be revealed if a sale actually happens.
The California Regulators shut down SVB on Friday. To protect insured depositors, the FDIC created a new entity called the Deposit Insurance National Bank of Santa Clara (DINB). It will move to protect insured depositors.
Anyone who’s a customer that may be reading this article, with accounts in excess of $250,000 can contact the FDIC toll-free at 1-866-799-0959.
How To Find Penny Stocks To Buy
Is SVB Financial going out of business? While the collapse of SIVB stock has come into focus over the last few days, and some are wondering about a potential sale, that has yet to be determined as of this article. But knowing how to handle headline risk, no matter which types of stocks you’re buying is important.
Data can give some insight into the market potential of certain companies. But there’s no substitute for education. Learning how to trade is more valuable than simply finding the next stock pick from a random social media account.
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