Investing in penny stocks is not for the faint-hearted. Typically, stocks priced below $5 are defined as penny stocks - and the share prices of these companies are often extremely volatile, but they also provide shareholders with the potential to derive game-changing returns over time.
Several big tech companies, including Apple (AAPL) and Amazon (AMZN), were once penny stocks that have delivered market-thumping gains for long-term shareholders. However, early investors in these tech titans, too, had to endure multiple pullbacks of over 80% several times on the way to outsized returns.
Investors with a large risk appetite can consider investing a small portion of their equity portfolio in penny stocks that have the potential to outpace the broader markets. One penny stock worth considering around current levels is Opko Health (OPK) - a member of the Russell 2000 Index (RUT) that analysts expect to more than double over the next 12 months.
An Overview of OPKO Health
Valued at $1.1 billion by market cap, Opko Health is a healthcare company engaged in the diagnostics and pharmaceuticals businesses in the Americas, Europe, Israel, and other international markets.
A diversified diagnostic platform, Opko Health owns and operates BioReference, one of the largest laboratories in the U.S., with a leading position in verticals such as Oncology and Urology. Following the COVID-19 pandemic, BioReference has transitioned towards core and specialty diagnostics.
It also offers the 4Kscore Test, an FDA-approved blood test that helps assess the probability of aggressive prostate cancer in patients. Last year, Opko acquired ModeX Therapeutics, a biotech company that develops multi-specific immune therapies for cancer and infectious diseases.
What's Driving Growth at Opko?
Similar to other healthcare companies, Opko Health benefited from the COVID-19 pandemic, allowing it to increase sales from $902 million in 2019 to $1.43 billion in 2020 and $1.77 billion by 2021.
However, as the virus was brought under control, sales fell to $1 billion in 2022, and are forecast to decline by 14.4% to $859 million this year. OPK remains unprofitable, but is forecast to narrow its losses in each of the next two fiscal years.
BioReference is among the largest full-service laboratories in the U.S., serving all 50 states. It has labs in New Jersey, Texas, Florida, and California, offering more than 3,000 tests. The lab serves roughly 10 million patients each year while operating high throughput facilities and specialty labs.
The total U.S. lab market is valued at $104 billion, providing Opko Health with enough room to grow its top line, given it reported sales of $868 million over the last four quarters.
In early 2023, OPKO secured FDA approval for Ngnela, which aims to develop diagnostic tests for the early detection of cancer. Its subsidiary ModeX also bagged an initial contract worth $59 million from the Biomedical Advanced Research Development Authority to develop antibodies against viral infectious disease threats. On reaching certain milestones, ModeX will be eligible for an additional grant totaling $109 million.
What Is the Target Price for This Penny Stock?
Along with the quiet endorsement of heavy insider buying, each of the five analysts tracking OPK stock has a “strong buy” rating on the healthcare company. The average target price for OPK is $3.60, indicating an upside potential of almost 137% from current levels.
