The allure of bargain stocks is undeniable, especially when it comes to penny stocks and small-cap companies. These types of investments can be found throughout various market conditions, but they are especially common during market downturns. For investors looking to capitalize on potential returns, both penny stocks and small-caps represent viable options, although they each carry different characteristics.
Understanding Penny Stocks vs Small-Caps
Penny stocks and small-cap stocks are often confused, but the key difference lies in their market capitalization rather than their stock price alone. In the United States, penny stocks are typically defined as stocks trading under $5, while in Australia, the traditional definition sticks to stocks priced below $1.00 AUD per share.
Penny stocks, by definition, have both low market capitalization and stock prices. This low price often attracts investors hoping for substantial returns from purchasing large quantities of affordable shares. However, it’s important to understand that these companies generally face substantial risks. Penny stocks are often early-stage businesses with limited revenue streams and high operational costs, frequently relying on borrowing or capital raising to survive. Many of these companies are in a race against time to turn a profit before they run out of capital.
On the other hand, small-cap stocks aren’t defined by their stock price but by their market capitalization. They tend to be in the early stages of growth, with similar risk factors as penny stocks, but may still show potential for growth and profitability. Investors should conduct thorough research to assess the viability of both penny and small-cap stocks before making any investments.
2024 Performance Review: Penny and Small-Cap Stocks to Watch
At the close of FY 2024, we revisited four penny stocks and small-cap stocks that showed promise earlier in the year. Here’s a look at their performance into the start of 2025:
Byron Energy (ASX: BYE)
Byron Energy’s market cap dropped from nearly $100 million in mid-2023 to $85.2 million by March 2024, placing it in the territory between penny stocks and small-caps. Despite a 1.23% rise year-over-year, the company saw an 18% drop in its stock price during 2024. Known for its oil and gas assets in the Gulf of Mexico, Byron generates revenue and posted significant profit growth, with profits rising by 150% from FY 21 to FY 2022.
Byron’s performance diverges from typical penny stocks, as it remains profitable, though its market cap continues to hover in penny stock territory. Despite the volatility in oil prices, Byron has shown financial resilience, a rare trait among penny stocks.
Prescient Therapeutics (ASX: PTX)
Prescient Therapeutics, a biotech firm focusing on cancer treatments, garnered attention in 2023 when its lead candidate, PTX100, received orphan drug approval from the US FDA. The stock experienced a surge, but that rally was short-lived. A subsequent announcement in December 2023 of positive clinical trial results for PTX100 ignited another temporary rally. However, the stock is down 71% over three years, finishing 2024 with a modest 1.7% increase as of January 2025.
Despite the volatility, Prescient has another treatment in clinical trials, with further potential after receiving FDA approval to advance PTX-100 trials. While its future remains uncertain, the company’s developments could provide opportunities for investors in the biotech space.
MinRex Resources (ASX: MRR)
MinRex Resources made headlines in late 2021 when it acquired multiple lithium exploration licenses in Western Australia’s Pilbara region. Initially, this caused the stock price to soar, but as lithium prices softened, the stock price followed suit, experiencing a decline. Despite a brief rally in October 2023 following positive updates on its lithium assets, MinRex’s stock is down 13% over the last five years and 42.8% year-over-year as of January 2025.
MinRex represents the typical cycle of enthusiasm and disappointment seen in penny stocks and small-caps, particularly in the volatile mining sector. While its lithium assets have potential, the overall performance has been erratic, making it a riskier investment in the current market.
The Takeaway: Risk and Reward in Penny and Small-Cap Stocks
Investing in penny and small-cap stocks requires a high tolerance for risk and a commitment to thorough research. While these stocks offer the potential for substantial returns, they also come with the danger of significant losses. The key to navigating these investments is understanding the company’s growth potential, its financial position, and how it is positioned within its sector.
For those considering investments in ASX penny stocks or small-caps, a cautious and well-researched approach is essential. Keeping an eye on market conditions and company performance will help identify the best opportunities, while minimizing the inherent risks associated with these types of stocks.
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