Investing in penny stocks can be appealing due to the low cost of entry and the potential for higher returns. The low share price means that investors can purchase a large number of shares with a relatively small amount of capital. Moreover, as these stocks trade at low prices, even a relatively modest price increase can result in substantial percentage gains for investors.
However, investors need to take caution, as penny stocks can be backed by companies with unproven business models and uncertain prospects. That means these stocks are risky, highly volatile, and could result in investment losses.
Considering these factors, Bark (BARK) and Arbe Robotics (ARBE) are two penny stocks that emerge as notable options for investors to keep an eye on. Let's take a closer look at both.
Penny Stock #1: Bark (BARK)
Bark (BARK) is an omnichannel company that serves dogs and their owners through two primary segments: toys & accessories and consumables, all under the BARK brand. The company’s products are sold directly to consumers and through a widespread network of retail partners.
Bark stock has gained 88.9% in the last three months. This notable growth reflects the company’s efforts to expand its customer base, enhance gross margins, generate free cash flow, and broaden revenue streams. In the first nine months of fiscal 2024, Bark bolstered its gross margin by over 350 basis points compared to the previous year. Further, it successfully mitigated cash burn and realized $13 million in free cash flow during fiscal Q3 of 2024.
Moreover, Bark has secured commitments from two prominent national retailers to introduce its new treat line across 2,400 locations nationwide, commencing this spring. This extensive distribution network promises to significantly boost revenue and raise consumer awareness of Bark’s consumables offerings. Additionally, Bark is leveraging artificial intelligence (AI) to craft tailored content and deploy targeted advertisements across various platforms, thereby bolstering its customer acquisition efforts.
As the company is delivering improved financials, Bark's leadership is focusing on profitability. The company is on track to return to top-line growth in fiscal 2025. Further, the improvements in gross margin - led by the consolidation of its vendors in the consumables segment, migration to a unified platform, and new shipping contracts - will enable the company to grow its margins and generate profits.
Overall, Bark’s expansion of its retail partnerships, improvement in traffic, conversion, and total orders in its direct-to-consumer business, cross-selling opportunities, and focus on cost savings bode well for growth.
Analyst sentiment toward Bark stock is positive, with three out of four rating it a “Strong Buy,” and one recommending a “Hold.” The consensus target price of $1.63 reflects a potential 20.7% increase from its current trading price.
Penny Stock #2: Arbe Robotics (ARBE)
Arbe Robotics (ARBE) is developing 4D imaging radar technology products, primarily targeting the automotive industry and autonomous vehicles. The company’s stock is under pressure, declining about 15.6% year-to-date and down about 49% from its 52-week high.
The company has yet to generate significant revenue. Moreover, factors such as the slowing adoption rate of electric vehicles (EVs), general macroeconomic uncertainty, and a high-interest rate environment are exerting pressure on Arbe’s clientele. Consequently, customers are deferring their product deployment schedules, thereby adversely affecting Arbe's stock performance. The company’s 2023 revenues were $1.5 million, a decline of $2 million from 2022. Further, new orders for the 2023 were $2.6 million.
Despite the short-term challenges, Arbe is well-positioned to capitalize on secular trends in the auto industry, including vehicle electrification and automation. The company’s focus on innovation to improve its offerings strongly positions it to emerge as the leading radar supplier of auto original equipment manufacturers (OEMs).
The company’s leadership remains confident and expects to announce “substantial customer wins” in 2024. Further, Arbe’s focus on targeting new areas around the non-automotive industry bodes well for growth. The company is in the final stages of production ramp-up in 2024, and expects its annual revenue to be in line with 2023. Looking ahead, management anticipates its revenue growing in 2025.
Further, Arbe maintains a strong balance sheet and is debt free. Also, it focuses on cost optimization, which will likely cut losses.
Four analysts cover ARBE stock, and all of them recommend a “Strong Buy.” The average price target for Arbe Robotics stock is $3.40, which suggests a potential upside of about 83.7% from current levels.
