While there are plenty of bargains to buy among penny stocks, there are also a good amount of overvalued penny stocks to sell. While significantly lower-priced now than they were at their respective high water-marks, many of these stocks are hardly bargains, trading at valuations unsustainable relative to their current operating performance. Rather than having high upside potential, with low downside risk, these names instead have plenty more room to fall relative to current prices. Some of them are even at risk of experiencing a full-on “game over” moment. Taking this into account, if you own any of these seven overvalued penny stocks to sell, consider it high time to make your exit.
Blue Apron (APRN)
Founded in 2012, it took just a few years for Blue Apron (NYSE:APRN) to become a household name. Despite this, the meal kit provider has failed to ever translate this into a profitable business. At the onset of the pandemic, there was speculation that the resulting “stay at home economy” would provide the company with a growth resurgence.
This provided a massive boost for APRN stock in 2020. However, as the pandemic failed to spur growth, with sales flatlining, and Blue Apron’s losses ballooning, shares have given back these gains, and then some since 2021. While APRN is a lot cheaper today, at sub-$1 per share prices, there’s a good reason for this. Even as Blue Apron shifts to an asset-light model, as a Seeking Alpha commentator argued earlier this month, the company needs to severely dilute shareholders in order to raise enough cash to survive.
Clover Health (CLOV)
As you may recall, Clover Health (NASDAQ:CLOV) was one of the more popular secondary meme plays during the “meme stock mania” of 2021. At the time, retail traders bid up CLOV to prices topping $25 per share. Flash forward to now, and CLOV stock is a far cry from its meme stock highs. Today, shares in the Medicare Advantage Plan provider trade for just under one dollar. Despite this low price though, it’s wise to consider it as one of the overvalued penny stocks to sell.
Why? Mostly, because the issues that caused CLOV to crater have not fully gone away. Clover keeps reporting high net losses. Last quarter, net losses came in at $72.6 million. With revenue growth slowing down, it is debatable whether this healthcare firm will attain the scale necessary to become consistently profitable. As poor results persist, shares will likely drift lower.
FuboTV (NYSE:FUBO) is another former retail investor fave that has become one of the top overvalued penny stocks. Back in late 2020, this company excited investors with an interesting business concept. At the time, FuboTV was pitching to the market that it would disrupt both the sports streaming and sports betting industries, by offering both programming and betting on its platform. Unfortunately, while on paper this combo sounded unstoppable, FuboTV failed to disrupt. Instead, competition from both the streaming and betting industries prevented the company’s game plan from working in practice.
The resultant high operating losses and underwhelming revenue growth caused FUBO stock to plunge. Fully abandoning its sports wagering plans, FuboTV is now merely an “also ran” streaming platform, that as InvestorPlace’s Larry Ramer recently argued, faces bleak prospects as it burns through cash and fails to attain the critical mass necessary to become profitable.
Unlike the overvalued penny stocks to sell mentioned above, MannKind (NASDAQ:MNKD) has not only been a publicly-traded company for far longer. Shares in this biotech firm, whose offerings include inhaled insulin product Afrezza, have been in or slightly above “penny stock territory” for most of the past decade.
InvestorPlace’s Ian Bezek isn’t confident that MNKD stock will make a permanent breakout from such low price levels. Earlier this month, he argued that the company is overvalued. Mostly, because MannKind’s flagship product Afreeza has failed to gain traction, and the company remains unprofitable.
Sure, analyst forecasts somewhat counter Bezek’s argument. The sell-side believes MNKD could achieve annual earnings of 35 cents per share in 2025. Still, take a look at other commentary about the company, and you’ll see it has a history of over-promising and under-delivering. It may be wise to take analyst forecasts with a grain of salt.
Mullen Automotive (MULN)
You don’t have to dig deep to see why Mullen Automotive (NASDAQ:MULN) is one of the top penny stocks to avoid. Plenty of investors have been burned after dabbling in shares in this early-stage electric vehicle (or EV) company.
High losses and heavy use of dilutive financing methods have led to extreme shareholder value destruction with MULN stock. Adjusting for stock splits, MULN stock has gone from prices over $400 per share in 2021, to less than $1 per share today.
If that’s not bad enough, all signs point to more shareholder value destruction ahead. As I argued earlier this month, Mullen needs to severely dilute shareholders once again, in order to both stay afloat, as well as to finance its EV production ramp-up. If the company raises these funds, and again ends up with little to show for it, MULN stock could experience another sharp plunge.
Rite Aid (RAD)
Pharmacy chain Rite Aid (NYSE:RAD) has long since been in a slump. Chalk this up to poor operating results and high levels of debt. However, the situation has rapidly worsened over the past year.This has caused RAD stock to tumble by two-thirds over the past year. Yet despite its current sub-$2 per share valuation, don’t assume the stock has become oversold. Instead, RAD appears to be one of the overvalued stocks to sell, mainly due to the high bankruptcy risk.
As a Bloomberg article detailed back in April, alongside upcoming debt maturities in 2025 and 2026, Rite Aid is also contending with opioid-related litigation. Barring an unforeseen recovery in Rite Aid’s operating performance, RAD shareholders are likely to either experience further high losses (from dilution stemming from capital infusions) or a total loss (if the company’s debt and legal liabilities throw it into Chapter 11).
Exela Technologies (XELA)
As I put it back in March, “even under a nickel, Exela Technologies (NASDAQ:XELA) isn’t worth a penny.” Admittedly, this quip is somewhat out of date. Following a 1-for-200 reverse stock split completed on May 12, the outsourcing firm’s shares no longer trade for literal pennies.
That said, the spirit of my argument still stands. The underlying fundamentals of XELA stock have not changed. Inflation has squeezed margins, and the company is scrambling to cut costs in order to get out of the red. At the same time, Exela’s balance sheet is saddled with around $1.1 billion in debt. Even with reported operational improvements, there’s a good chance this debt vastly exceeds the underlying value of the business. XELA may not go to zero, but if negotiations with some of its lenders lead to a recapitalization, dilution from a debt-for-equity swap could send shares to significantly lower prices.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.