Penny stocks are shares of companies trading at low prices, typically under $5. Investing in penny stocks offers benefits like high growth potential, low initial investment requirements, and early stage investment opportunities. However, penny stocks are exceptionally risky due to their extreme price volatility, limited trading liquidity, vulnerability to market manipulation, lack of transparency, and high company failure rates.
Due to these substantial risks, penny stocks are considered speculative investments, making them suitable for investors with a high-risk appetite. Alternatively, mega-cap giants such as Apple (AAPL), Nvidia (NVDA), and Amazon (AMZN) were once penny stocks that delivered game-changing returns to shareholders over time.
One penny stock that has surged close to 400% on a mega deal is LeddarTech Holdings (LDTC). Let’s see if you should buy, sell, or hold the tech stock right now.
Is LeddarTech a Good Buy Right Now?
Founded in 2007, LeddarTech provides AI-based fusion and perception software solutions for advanced driver assistance solutions and autonomous driving applications. It offers a sensor fusion and perception platform for automotive and off-road industrial vehicles.
Valued at a market capitalization of $44 million, LeddarTech reported revenue of $5.8 million in the last 12 months, an increase of 2.8% year-over-year. Its gross margins improved to 41.2% in the past year, from 39.4% in fiscal 2022. However, the company continues to remain unprofitable as its operating losses have totaled $25 million in the trailing 12-month period.
LeddarTech ended its fiscal third quarter with a cash balance of $5.7 million and $56.6 million in long-term debt. It's evident that LeddarTech will have to raise additional capital to run its operations and service interest payments, making it a high-risk investment right now.
LeddarTech has two options to raise capital. The first is by selling company stock and diluting existing shareholder wealth. Alternatively, it can consider increasing balance sheet debt, which might be expensive due to its negative profit margins.
Why Did the Penny Stock Surge 380% Yesterday?
Shares of LeddarTech gained 380% yesterday after it announced a strategic collaboration with Texas Instruments (TXN) to develop self-driving technology for automobiles. Texas Instruments will make advance royalty payments to LeddarTech as part of the deal.
Importantly, LeddarTech has modified its loan agreements with Desjardins and has paused interest payments between July and December 2024. It has also temporarily suspended minimum cash requirements and extended loan payment deadlines. These changes will take effect once Texas Instruments makes its first royalty payment and after LeddarTech raises at least $35 million from investors.
What Is the Target Price for LDTC Stock?
Despite the recent uptick in share prices, LDTC stock trades almost 90% below all-time highs. Out of the three analysts covering LDTC stock, one recommends “Strong Buy” and two recommend “Hold.” The average target price for the penny stock is $1, which is 20% lower than the current trading price.
