May 24th, 2023 | 07:55 CEST
Penny stocks without risk? Nikola Corporation, Steinhoff, Orestone Mining
They have always held great appeal for investors: Penny stocks. Whenever shares are trading below one euro, gamblers pounce on them. But why is that? And are all penny stocks speculative? We explain the phenomenon of penny stocks using three stocks as examples. This much can already be revealed: They range from speculative to promising. Nevertheless, investors should keep their hands off one share.
time to read: 3 minutes
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Author:
Nico Popp
ISIN:
NIKOLA CORP. | US6541101050 , STEINHOFF INT.HLDG.EO-_50 | NL0011375019 , ORESTONE MINING CORP. | CA6861543032
Table of contents:
"[...] We have built one of the largest land packages of any non-producer in the belt at over 440 sq.km and have made more than 25 gold discoveries on the property to date with 5 of these discoveries totaling about 1.1 million ounces of gold resources. [...]" Jared Scharf, CEO, Desert Gold Ventures Inc.
Author
Nico Popp
At home in Southern Germany, the passionate stock exchange expert has been accompanying the capital markets for about twenty years. With a soft spot for smaller companies, he is constantly on the lookout for exciting investment stories.
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Nikola: Back and forth to bankruptcy?
When the hydrogen pioneer Nikola had a prototype roll down a hill for a promotional video a few years ago to give the impression that the truck was driving itself, it was an absolute PR disaster. Even before the overall market sentiment turned negative, Nikola had its back to the wall. The share price plummeted from over EUR 80 to currently less than EUR 0.80. This makes Nikola a prime example of a fallen angel that has become a penny stock. Lofty plans often still lurk in these companies, but a turnaround becomes difficult. Nikola's plans to not leave the battery-powered truck field to Tesla's competitors date back to 2019. But the e-trucks are selling poorly.
Most recently, Nikola announced that it would shut down a production line for battery trucks in Arizona for about a month to convert the plant so that fuel cell trucks can also be built there in the future. The background is weak sales figures: Of 63 e-trucks built, Nikola delivered only 31 in the first quarter. The battery manufacturer Romeo Power acquired less than a year ago is also up for sale. Everything from a sale to bankruptcy seems conceivable. Less than a year ago, Nikola was worth a whopping USD 144 million. Although the hydrogen truck business is doing better, it still posted a loss of USD 169.1 million in the first quarter. There is no telling when Nikola will become profitable. The Company is biting off more than it can chew, and at the same time, its options are diminishing. The risk with this penny stock is high.
Orestone Mining: Mini market capitalization and a mission
Orestone Mining, on the other hand, is of a completely different calibre. The Company is exploring for copper, silver and gold on its Captain Gold Copper project. The share is currently trading at a manageable EUR 0.02. Unlike Nikola, Orestone Mining is not in decline but at the very beginning. Instead of a large number of shares, Orestone Mining's low price represents a market capitalization of only about CAD 2 million. Yet there are already indications of mineral deposits. Former property owners have spent CAD 5.4 million on drilling over 8,000 metres. Orestone has expanded this data using magnetic techniques and identified a prospective target zone that will now be analyzed in more detail. Samples from the target zone have so far returned grades of 1.89 g/t gold, 11 g/t silver and 0.23% copper. Recent data further support the potential for a relevant zone of mineralization, according to the Company.
Orestone Mining's stock is a flawless penny stock: the business is in its infancy, the market capitalization is low, and the stock is currently illiquid. On the plus side, the management has years of experience in the industry. CEO David Hottman was one of the founders of Eldorado Gold and has successfully sold several projects in the past. Geologists and CFO Mark Brown have also been involved in successful exits in the commodities sector in the past. While Nikola seems to be getting bogged down and burning money every month, the team at Orestone Mining has only one goal: to successfully explore and make the market aware of the Captain Gold Copper project. Given the stock's low market capitalization and comparatively low profile, it could be a speculative portfolio addition - the backdrop for precious metals and copper appears favourable.
Steinhoff: Be sure to observe these deadlines!
The most popular penny stock of the past years is, without a doubt, Steinhoff. The share of the furniture manufacturer from South Africa has been suffering for years. What happened? After an accounting scandal, numerous shareholders went to court. A back and forth ensued, and the share reacted to every update report from the lawyers. Today Steinhoff is trading at EUR 0.01. Currently, it looks as if regular insolvency proceedings will be opened from June 30, 2023. However, shareholders can still turn to the Schutzgemeinschaft der Kapitalanleger (SdK), which supports disowned shareholders. The deadline for this is May 24, 2023. Even if it looks like Steinhoff will soon disappear from the market - a last twitch cannot be ruled out. However, gamblers should bear in mind that the share offers no substance as of today. Compared to stocks like Nikola, where shareholders have been waiting for a breakthrough for years, at least everyone involved in Steinhoff knows where they stand.
There are different types of penny stocks. Emerging companies are generally preferable to fallen angels. While timing is crucial for companies in decline, investors can gradually enter small but emerging companies like Orestone Mining and wait and see. However, these are not classic buy-and-hold stocks. It is important to always check operational progress against management's plans and to follow the Company closely. Then penny stocks can provide a significant outperformance compared to the overall market.
Conflict of interest
Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") may hold shares or other financial instruments of the aforementioned companies in the future or may bet on rising or falling prices and thus a conflict of interest may arise in the future. The Relevant Persons reserve the right to buy or sell shares or other financial instruments of the Company at any time (hereinafter each a "Transaction"). Transactions may, under certain circumstances, influence the respective price of the shares or other financial instruments of the Company.
In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.
For this reason, there is a concrete conflict of interest.
The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.
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