We recently compiled a list of the 10 Best Penny Stocks To Buy According to the Media. In this article, we are going to take a look at where Compass, Inc. (NYSE:COMP) stands against the other penny stocks.
Penny stocks are those that trade below the price of $5. These stocks represent companies with smaller market capitalization, high risk, and high volatility. Risk-tolerant investors find potential for above-average returns in penny stocks, however, investing in these stocks requires caution and care.
Expected Trends for Small Cap Stocks
On July 17, Chris Retzler, Needham’s small-cap growth portfolio manager, appeared on CNBC where he expressed optimism for the small-cap companies and suggested that we are in a cycle that will prove to be good for many small-cap companies. The Russell 2000 index jumped 3.5% higher on the July 16, hitting the highest levels since January 2022, and was up more than 10% in the previous week. This was one of the biggest rallies investors have seen in the past 4 years.
Retzler believes that small cap stocks have been waiting for a drop in inflation and interest rate cuts. With inflation easing, interest rates are expected to go down as well. He also sees the market broadening, with small companies that have underperformed benefiting from a drop in inflation.
Retzler agrees with Fundstrat’s Tom Lee’s, who sees the Russell 2000 gaining 40% by the end of summer. He believes that the liquidity of small cap companies gives them an edge as it does not take a lot of money to push the stock prices higher, and some expansions by these companies followed by lower interest rates can prove to be good for Russell 2000 companies. We have discussed Tom Lee’s views on how favorable current market conditions are for small-cap companies in 10 Best NASDAQ Penny Stocks To Invest In.
Moreover, Ryan Detrick, who is the Chief Market Strategist at Carson Group also presented his bullish thesis for small and mid-cap companies. He believes that small and mid-cap are going to lead the market in the second half of the year. While addressing the earnings capability of these companies, Detrick said small-cap companies will outperform large-cap companies in 2025 and 2026. As per estimates, S&P 600’s earnings were 4.1% in 2024, whereas S&P 500 earnings were 12.7%. However, moving forward analysts expect S&P 600’s earnings to be at 17.7% in 2025, surpassing estimates of 14.2% for the S&P 500. Detrick believes small-cap stocks now look cheap, economic conditions are favorable, and any interest rate cuts that come along the way will further benefit them.
Now that we’ve discussed what experts think about small caps, let’s now look at the 10 best penny stocks to buy according to financial media.
Our Methodology
To compile our list of the best penny stocks to buy according to media, we aggregated 50 plus penny stocks from financial media websites on the internet. We then selected the top 10 penny stocks that were the most widely held by hedge funds, as of Q1 2024. The list is in ascending order of the number of hedge funds holders in each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An excited real estate broker discussing with a couple interested in buying a home.
Compass, Inc. (NYSE:COMP)
Number of Hedge Fund Holders: 29
Compass, Inc. (NYSE:COMP) is a real estate technology company that employs real estate agents and provides them with an end-to-end platform to deliver exceptional client management. The success of Compass, Inc. (NYSE:COMP) is directly tied to the success of its agents. The company generates most of its revenue from the commissions paid by real estate agents every time a property is transacted through its platform.
The platform provided by the company is not only backed by proprietary data and analytics, but uses machine learning and AI to simplify the workflow for agents. Agents can use the integrated cloud-based suite to manage customer relationships, client service, marketing, brokerage service, and other functionalities all using the tailor-built platform for the real estate sector.
The platform continues to attract real estate agents and increased its principal agent count by 7.3% year over year in the first quarter, despite the headwinds from rising interest rates and declining real estate transactions in the market. Compass, Inc. (NYSE:COMP) is an investors’ favourite as it was held by 29 hedge funds in Q1 2024 with stakes worth over $188 million.
In Q1 2024, Compass, Inc. (NYSE:COMP) grew its revenue by 10% year-on-year to $1.05 billion. The increase in revenue was mainly on the back of increasing real-estate transactions during the quarter. The company processed 38,449 transactions during Q1, up 7.1% year over year. The company has also raised its next quarter revenue guidance and said it expects revenue to grow to between $1.6 billion to $1.7 billion, while analysts’ expectations sit at $1.5 billion. This rise in expectation stems from its agents outperforming the market in terms of closing deals. Moreover, management has remained focused on reducing costs through incorporating technology and reduced its operating expenses by $32 million year-over-year during the first quarter and brought them down to $211 million.
Is COMP too risky to invest in? Here’s the conclusion:
Compass, Inc. (NYSE:COMP) might be a risky investment due to the current real estate slowdown and the lack of supply of affordable houses in the US. However, the company has grown its annual transactions by 7.1% year-over-year in Q1, while the overall market saw a 3.5% decline. Moreover, the company has grown its market share as well. In Q1 the company grew its quarterly market share by 26 base points year-over-year. The company is also expanding its presence into new regions. On April 3, Compass, Inc. announced its expansion to New Orleans and the Louisiana and Mississippi market by strategically acquiring Latter & Blum, a renowned real estate advisor in the South. This strategic acquisition will not only enable the company to expand its market share further but has the potential to bring more revenue as now Latter & Blum’s agents would have access to Compass, Inc’s platform.
Stated that the company’s agents have been successfully closing real-estate transactions despite the slowdown in the market, the year over year increase of 33% in the company’s inventory presents an attractive front for future growth. Moreover, Compass, Inc. is leveraging AI in its platform by providing its agents with smart real-estate valuation analysis, AI-driven content for property listings and marketing, and much more. Its AI-Driven Client Prospecting Recommendations System automatically recommends relevant clients in an agent’s contact database, thereby increasing the chances of a successful transaction. Over the past 3 months, 3 Wall Street analysts have given a Buy rating on the stock and the average price target of $9.09 represents an upside of 185% from current levels.
Overall COMP ranks 2nd on our list of the best penny stocks to buy according to the media. You can visit 10 Best Penny Stocks To Buy According to the Media to see the other penny stocks that are on hedge funds’ radar. While we acknowledge the potential of COMP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than COMP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.