Not every investor is comfortable with penny stocks. Many investors who favour blue-chip stocks tend to avoid them just to be safe. Sometimes, this attitude extends to all stocks trading at a single-digit price tag, even though the stocks trading above $5 and below $10 aren’t technically penny stocks. This may cause them to forgo promising prospects like Dentalcorp Holding (TSX:DNTL).
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The company and stock
Dentalcorp is currently the largest network of dental practices across Canada. There are about 550 locations/practices under the Dentalcorp umbrella, with over 4,400 dental professionals handling over 5.4 million patient visits each year. The network is massive and rapidly growing.
However, the stock has mostly gone downward since its inception. It’s currently trading at a 44% discount from its inception price and a 23% discount from its 12-month peak.
However, its bullish potential is also quite strong. In its best growth phase in the last 12 months, the stock rose by over 70% in roughly seven months. These kinds of bullish trends are few and far between, but the rapid growth potential is still an important variable to consider.
To buy or not to buy?
A case can be made for both buying and not buying this stock. The most crucial argument against buying this stock is its financials. The company has yet to break even (and stay the course). In the last 11 quarters, it has had a positive net income for just two quarters.
However, revenue is growing, and losses are shrinking, so the company’s financial issues might be over. Some analysts are projecting that the company will adequately break even in about a year.
Another reason to not consider this stock is its debt, which is quite close to the entire market capitalization of the company. The company also has relatively limited cash.
The most significant reason to buy is the discount itself. At this level, positive market sentiment or strong financials can trigger an intense recovery phase, which may lead to significant returns in a relatively short time frame.
Another reason to consider this company is the insider ownership. Insiders own about 5.2% of the company and are still buying. This shows that the people running or connected to the company have confidence in its long-term potential. One highly speculative reason is that the company might start paying dividends as its financials stabilize.
Foolish takeaway
The reasons to not buy this company currently seem more substantial and more compelling, especially for investors who like to play it safe.
But if you have a healthy risk appetite and are interested in buying a heavily discounted stock, Dentalcorp seems like a good enough deal, especially at its single-digit price of $7.9 per share. A strong bull market can quickly push it past the $10 mark, and at its peak, the stock has traded way above that (over $18 per share at its peak).
