We recently The 10 best penny stocks to buy, according to mediaIn this article, we’ll take a look at how Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) stands in relation to other penny stocks.
Penny stocks are stocks that trade for less than $5. These stocks represent companies with small market capitalizations, high risk, and high volatility. Investors with high risk tolerance find penny stocks to offer the potential for above-average profits, but caution and consideration should be taken when investing in these stocks.
Small Cap Expected Trends
On July 17, Chris Retzler, small-cap growth portfolio manager at Needham, appeared on CNBC and expressed optimism about small-cap companies, suggesting that we are in a good cycle for many small-cap companies. The Russell 2000 Index rose 3.5% on July 16, hitting its highest level since January 2022, and was up more than 10% the previous week, one of the biggest gains investors have seen in the past four years.
Letzler believes small-cap stocks have been waiting for lower inflation and interest rates to come in. As inflation eases, he expects interest rates to fall. He also sees the market expanding and smaller companies that have struggled to do well benefit from lower inflation.
Letzler agrees with Fundstrat’s Tom Lee, who sees the Russell 2000 Index rising 40% by the end of the summer. He believes that small-cap liquidity favors them because they don’t need a lot of capital to drive up their stock prices, and the expansion of these companies and the subsequent low interest rates could bode well for Russell 2000 companies. Tom Lee’s views on how favorable the current market conditions are for small-cap companies are covered in “10 Best NASDAQ Penny Stocks to Invest In.”
In addition, Ryan Detrick, chief market strategist at Carson Group, also expressed a bullish view on small and mid-cap stocks. He believes that small and mid-cap stocks will lead the market in the second half of this year. Touching on the profitability of these companies, Detrick said that small and mid-cap stocks will outperform large-cap stocks in 2025 and 2026. According to estimates, the S&P 600’s earnings in 2024 were 4.1% and the S&P 500’s earnings were 12.7%. However, going forward, analysts expect the S&P 600’s earnings in 2025 to be 17.7%, exceeding the estimate of 14.2% for the S&P 500. Detrick believes that currently, small and mid-cap stocks look cheap, the economic situation is good, and if interest rates are lowered in the future, small and mid-cap stocks will benefit even more.
Now that we’ve discussed what experts think about small-cap stocks, let’s take a look at the top 10 penny stocks to buy as recommended by financial media.
Our Methodology
To create a list of the best penny stocks to buy, according to the media, we aggregated over 50 penny stocks from financial media websites across the Internet. We then selected the top 10 penny stocks that are most widely held by hedge funds as of the first quarter of 2024. The list is in ascending order of the number of hedge fund holders of each stock.
Why do we care about hedge funds? The reason is simple: our research shows that you can outperform the market by mimicking the top holdings of the best hedge funds. Our quarterly newsletter strategy selects 14 small and large stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points (Click here for details).
A groomer diligently brushing a fluffy white dog.
Petco Health & Wellness Company (NASDAQ:WOOF)
Number of hedge fund holders: 16
Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) began as a pet supplies retailer in 1965 and went public in 2021 due to the increase in pet ownership during the pandemic. Today, the company serves as a one-stop shop for pets and pet owners, offering veterinary care, grooming, training, telemedicine, pet supplies such as pet food, treats, and toys, and pet health insurance services. The company also operates a mobile clinic called “Vetco” that delivers veterinary services directly to communities. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) provides services through 1,423 pet care centers in the United States and Puerto Rico, 131 pet centers in Mexico through joint venture agreements, and several websites where customers can purchase products online.
The company’s ability to locate veterinary clinics and grooming services within its stores to become a one-stop shop for pet owners gives Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) a competitive advantage over e-commerce platform competitors. Additionally, pet food brands such as WholeHearted and Reddy offer products specifically for pets, allowing the company to benefit from the growing pet care market. According to Mordor Intelligence, the U.S. pet care and services market is valued at $12.21 billion in 2024 and is expected to grow at a CAGR of 3.51% to reach $14.51 billion by 2029.
The company is not currently profitable, and it reported first-quarter 2024 revenue of $1.5 billion, down 2% year over year, but a loss of 4 cents per share, beating analyst expectations by 2 cents. Petco Health & Wellness Company (NASDAQ:WOOF) has beaten earnings expectations in five of the past eight quarters, and management expects to be free cash flow positive during fiscal 2024. Additionally, the company’s 2023 annual report projects revenue to be up 3.6% year over year and same-store sales to be up 1.8% year over year, indicating its ability to capitalize on the growing U.S. pet care and services market.
The company is also prioritizing strategic partnerships to expand the reach and market share of its pet supplies and services. In August 2023, the company expanded its partnership with DoorDash to make Petco’s products available nationwide through the DoorDash Marketplace. In addition, Petco also upgraded its website with features such as a streamlined pet profile for all of your pet’s health needs. This new feature allows customers to stay on top of their pet’s needs, including vaccinations, grooming appointments, and more.
According to the media, WOOF is one of the best penny stocks to buy. Not only does the company operate in a growing industry expected to reach $14 billion by 2029, it also has the competitive advantage of being a one-stop shop for pet owners. Management is open to cost-saving transformation, which is expected to realize $150 million in cost savings by 2025. The company was also able to reduce capital expenditures by 47% year-over-year in the first quarter and is on track to achieve positive free cash flow this year. 16 hedge funds held the stock in Q1 2024, with their combined holdings of $39.795 million.
Overall WOOF 10th Here is the media’s list of the best penny stocks to buy. The 10 best penny stocks to buy, according to media Let’s take a look at other penny stocks that hedge funds are watching. While we acknowledge the investment potential of WOOF, we believe that AI stocks have a better chance of delivering higher returns in the short term. If you are looking for AI stocks that are more promising than WOOF and trading at less than 5x, check out our report. Cheapest AI Stocks.
Read next: Analysts see a new $25 billion “opportunity” in NVIDIA, Jim Cramer recommended these 10 stocks in June.
Disclosures: None. This article was originally published on Insider Monkey.
