Penny stocks have always been an alluring investment throughout history because of their low price. A stock under $5, if coupled with exponential growth potential, can become an instant hit on the stock market. And lead to explosive returns for investors. However, penny stocks are far from risk-free and can often disappear without warning. 

Personally, I believe there are fantastic opportunities within this market sector to jump on disruptive and innovative companies. But finding these hidden gems in a sea of mediocrity requires careful scrutinisation of the company’s financials and future plans.

With that said, here are my thoughts on some of the currently trending penny stocks.

Oil & Gas exploration still has momentum

Tellurian Inc (NASDAQ:TELL) is an oil and gas exploration and production company that focuses on producing liquefied natural gas (LNG). Currently standing at a market valuation of $1.2bn, this penny stock is trading at $2.59 per share.

The recent deals of Tellurian not only sparked investor interest but has also given a massive boost to the stock price. The oil and gas production company has signed a 10-year agreement to supply 10 million tonnes of LNG per annum to Gunvor, Vitol and Shell. The partnership with the industry leader, Shell, is very encouraging in my mind. And so, to me, this could be a viable penny opportunity for my portfolio.

The firm plans to invest $12bn in development projects to meet the increasing demand for LNG. But like all commodity-based businesses, the price of LNG is ultimately driven by the market. So if it were to take a sudden downturn, this 10-year deal could end up being worth relatively little. Needless to say, that’s not good news for the Tellurian share price. And could even jeopardise the company’s financial position, as well as future growth prospects.

RELATED: How to analyse oil & gas stocks

A penny stock optimising video streaming

Pixelworks Inc. (NASDAQ:PXLW) provides optimised video delivery services through its technology. It has an IP portfolio that includes hundreds of issued and pending patents related to the visual display of video and digital images. This penny stock is currently trading at $5.4 per share, pushing its market capitalisation to around $285m.

In its recent quarterly report, the firm reported revenue growth of over 50% on a sequential and year-on-year basis. Moreover, the video delivery company has secured significant capital investments for its Shanghai Shanghai R&D centre, PWSH. The goal is to transform it into a profit churning machine for its mobile, projector and video delivery business throughout Asia.

As promising as this may be, the company’s credit facility is concerning. Its current loan and security agreement with Silicon Valley Bank limits its ability to fund fluctuations in working capital requirements. This could lead to significantly restricted operational growth for the company. Therefore, I’ll be keeping this penny stock on my watchlist for now.

Final thoughts

I believe penny stocks can be an enormous source of wealth when investigated rigorously and adequately. Even then, the risks are still high. But the potential reward makes them worthwhile pursuits in my mind.