From Rags to Riches: These One-Time Penny Stocks Didn't Stay That Way
Justifiably, penny stocks have a bad reputation. While speculating on penny stocks can be exciting, in reality it is tantamount to gambling at the craps table. While it could be argued that all investing is a form of speculation, in the penny stock universe this is undoubtedly true. The micro-cap space is littered with scams, pump and dumps, and outright frauds.
Swindlers prey on inexperienced investors' greed and desire for quick profits by making outrageous claims about tiny companies and suggesting that a small investment will turn into an enormous windfall.
Of course, this almost never happens. In fact, the opposite is normally true and investors end up losing their shirts. The micro-cap universe is risky not just because of the preponderance of pump and dumps and frauds, but also because of the shaky financial footing of most of the companies.
Many penny stocks are actually legitimate businesses, but they are almost always under-capitalized and not very successful in their industry. After all, if they were industry leaders they wouldn't be penny stocks!
The other type of penny stock that investors may be familiar with is the formerly successful company that has come on hard times. This is not uncommon. Often, the market expects that these companies are heading for bankruptcy (and sometimes they are) and prices the stock accordingly. Most of the time these aren't great investments either, but every once in awhile they can produce staggering gains.
While penny stocks have a bad reputation, all of the risk does not come without the potential for massive reward -- even if it is rare. In this slideshow, we highlight 10 stocks that at one time traded under one dollar but have subsequently exploded higher making investors a boatload of cold, hard cash.
The list includes a former penny stock scam which miraculously turned into a successful apparel company, formerly successful businesses that collapsed only to be resurrected, and tiny companies whose "big idea" hit the jackpot.
Concur Technologies (NASDAQ: CNQR) This is a stock with a colorful history. Based in Redmond, Washington, Concur is a global provider of on-demand Employee Spend Management solutions. The company's software allows its customers to integrate, track, and analyze travel and expense data across the enterprise.
Over 18 million people in 100 countries and 60 percent of the Fortune 500 are using Concur's travel and expense data management solution. The company's business, however, was not always so successful.
Although shares soared as high as $48.50 during the height of the tech bubble in 1999, they subsequently crashed along with the Nasdaq. On March 30, 2001, CNQR traded as low as $0.31 on the Nasdaq Stock Market. Today, those same shares are worth around $66.00, notching a gain of roughly 21,190% from the all-time lows.
General Growth Properties (NYSE: GGP) This real estate investment trust (REIT) was a casualty of the financial crisis. Over the years, General Growth had built a massive portfolio of mall-based real estate which it leased out to tenants. Throughout the 90s and the better part of the 2000s, GGP was a great investment, hitting an all-time high above $64.00 in March 2007.
During the good times, however, the company made the mistake of loading up on debt to acquire more malls. When the credit markets seized up in 2008, General Growth was unable to refinance its maturing debt.
Subsequently, GGP filed for Chapter 11 bankruptcy in April 2009. The stock was not worthless, however, because the company's underlying real-estate holdings were still extremely valuable. If General Growth could work things out with its creditors during the bankruptcy process and re-emerge in better financial condition, the stock would still have value. In fact, GGP shares actually rose during the process.
Investors such as hedge fund Pershing Square Capital Management who understood the intricacies of the bankruptcy made a fortune. On February 27, 2009 General Growth shares hit an all-time low of $0.59. Today, GGP is trading at around $19.50, a gain of around 3,205 percent from the lows.
True Religion (NASDAQ: TRLG) According to penny stock short-seller Timothy Sykes, True Religion is "a pure Vancouver spam-fraud turned 'real' company," (many stock fraud schemes originate out of Vancouver, Canada). In fact, TRLG may be the only example of a penny stock scheme-turned successful company in the history of the stock market.
The catalyst for the company's rise was that its designer "True Religion" jeans actually caught on and became extremely popular.
Now, TRLG is a $667 million company with a following on Wall Street. It is a pretty amazing story, and even more amazing is the fact that all of this has happened over the course of eight short years. On July 30, 2004, True Religion shares traded as low as $0.67. Today, the stock is worth nearly $26.00 per share.
Penny stocks may be risky, but in the case of TRLG the risk taken would have turned into an incredible windfall with shares rising almost 3,780 percent from their all-time lows.
Pier 1 Imports (NYSE: PIR) This is another example of a once successful company that was driven to the absolute brink during the financial crisis. Pier 1 Imports sells a range of decorative accessories, furniture, candles, housewares, gifts and seasonal products in its well-known stores.
Although the stock was frequently volatile through the late-1990s and mid-2000s, the company was a success and shares hit a high above $25.00 in November 2003.
In the subsequent years, PIR fell sharply from these levels as business began to struggle. The near coup de grace, however, was the financial crisis and the implosion of the housing market. Given that Pier 1 sells furniture and housewares, the mortgage meltdown devastated its business almost to the point of no return. On March 13, 2009, PIR hit a low of $0.11.
Miraculously, the company never did declare bankruptcy. An improving economy and a rising stock market has subsequently sent the stock back near its old highs. Currently, shares trade at $20.34. Sometimes, penny stocks really do payoff!
American Axle & Manufacturing (NYSE: AXL) Not only did the housing market collapse in 2008, but the subsequent recession nearly wiped out the American auto industry. The bankruptcies of General Motors (NYSE: GM) and Chrysler (OTC: FIATY) and the near-bankruptcy of Ford (NYSE: F) devastated American Axle & Manufacturing.
The company manufactures driveline and drivetrain systems and related components and chassis modules for the automotive industry. Its not hard to imagine what happened to AXL shares at the height of the financial crisis when some of its biggest customers were declaring bankruptcy.
On March 6, 2009 American Axle shares closed at $0.40. Fortunately, the company avoided the same fate as many of its customers, and managed to stave off a bankruptcy filing. Investors who caught the falling knife that was AXL in 2009, have subsequently been rewarded as the stock trades above $12.00 today.
BJ's Restaurants (NASDAQ: BJRI) The story of how BJ's Restaurants went from a penny stock to a company with a market capitalization of over $1 billion is one of perseverance and time. The company operates 117 casual dining establishments under the BJ's Restaurant & Brewery, BJ's Restaurant & Brewhouse, BJ's Pizza & Grill and BJ's Grill brand names. The business has steadily grown over the years and the stock price has climbed and climbed. Back in 1997, however, BJRI was a little followed stock which traded below $2.00.
In fact, on April 30, 1997 the stock closed at just $1.00. Today, BJRI is trading near $38.00. Investors who took a flier on BJRI at $1.00 and held on, have been richly rewarded as the price has gone up around 3,700 percent during that time.
Medifast (NYSE: MED) Medifast is a great example of a penny stock that matured into a successful company over time. Medifast has succeeded in an industry where many others have tried and failed. The company is engaged in the production, distribution, and sale of weight management and disease management products and other consumable health and diet products. Over the years, the shares have been volatile, but over any significant period of time, they have gone up.
In the early 2000s, investors viewed the company with skepticism as the weight-loss and supplement market has not always enjoyed the best reputation. In fact, on December 29, 2000 this was a $0.14 stock. Fast forward to today, and Medifast is a well-known brand and the company sports a market cap of more than $405 million. The stock is currently trading over $26.00.
Medifast was even named the #1 Small Company in America by Forbes Magazine in 2010. Not bad for a former penny stock with very humble beginnings.
Quality Systems (NASDAQ: QSII) This company has seen its share price explode in the 2000s after spending nearly two decades as a penny stock. From the time that QSII went public in 1982 until 2001, the shares rarely traded over $1.00. Over the last decade, however, the company's healthcare information systems and solutions have caught on in the medical field.
Today, Quality Systems has a market cap of over $1 billion and the stock is trading above $18.00. In 2011, shares hit an all-time high above $48.00 and as recently as April 2012, the stock was trading above $40.00 per share.
Monster Beverage (NASDAQ: MNST) This is probably the most well-known stock on this list as Monster Beverage has become a favored Wall Street momentum stock. The company, which was formerly known as Hansen Natural, has been around since 1935, although its business has evolved significantly since then.
The company makes energy drinks, natural soft drinks and fruit drinks. Its most popular products are Monster Energy Drink and Hansen's Natural Soda.
Currently, Monster shares trade at around $53.00 and the company has a market cap of more than $9.4 billion. Believe it or not, however, it wasn't that long ago that the shares traded below $1.00.
On December 29, 1995 Monster shares (then known as Hansen Natural) closed at $0.69. As the energy drink market exploded in the last decade, so has Monster Beverage, and this former penny stock became a Wall Street high-flier.
Sirona Dental Systems (NASDAQ: SIRO) This company has been growing consistently over the last decade and currently sports a market cap of over $3 billion. Sirona is a manufacturer of dental equipment which operates on a global basis through an international network of distributors. The stock, which is sitting near all-time highs above $55.00, has produced incredible returns. Over the last decade alone, SIRO has gained 2,520%.
If you calculate returns from when SIRO traded under $1.00, they would be even greater. On December 29, 2000 the stock closed at $0.27. Sirona is a perfect example of the potential rewards that can come with investing in penny stocks, even if they are rare.
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