A penny stock is a share of a company that is trading for a very low amount: under US$5 or £1. This is usually because the companies are small and in the early stages of growth.
This means they carry huge risks due to the uncertainty of the underlying company’s success. However, if successful, penny stocks can generate great wealth, due to their potential runaway of growth.
CuriosityStream (NASDAQ: CURI) is a penny stock I’m buying more of now, as I believe the potential rewards outsize the risks.
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What is CuriosityStream?
There are many players in the streaming industry. What sets CuriosityStream apart from rivals, such as Netflix, is its focus on documentaries and educational content. It is very small, with a market cap of $88.7m. Subscribers currently stand at 24 million.
CuriosityStream only went public in 2020. In February 2022, its share price peaked at $22.90. However, this has since fallen by over 90% to $1.60.
I have personally felt the pain of this drop, accumulating my holdings at an average price of $10 a share. But I’m still holding my position with plans to add to it. This is because I see a great opportunity to invest in a company with huge potential in its early stages of growth.
Risks
CurisoityStream is currently very unprofitable. In the last 12 months, it has lost almost $48m on over $90m in revenue. Bearing in mind that it has only $63m in cash, there could be cash flow problems in the future if profitability doesn’t swing.
Cheap valuation and strong growth
However, many of today’s great companies initially struggled with profitability in their early days and there is also plenty to like about CuriosityStream’s shares.
Firstly, its shares are trading at a price-to-sales (P/S) ratio of just 0.98. For context, Netflix trades at a P/S of almost five. For a company that recently grew quarterly revenue by 26% year on year, this is a bargain. This growth is despite ongoing macroeconomic difficulties.
Secondly, rivals have much more expensive subscription plans. CuriosityStream only charges $2.99 for its basic plan, so there is an opportunity to increase revenue with price hikes.
Thirdly, we now live in a world where information comes from multiple sources. It is often difficult to distinguish between what is and isn’t reliable. This has created the modern-day phenomenon known as ‘fake news’. CuriosityStream’s content is a place to get information from a trusted source. This case is strengthened by its partnerships with many leading universities.
Finally, founder John Hendricks also founded the mass-media factual television company Discovery, leading it to many years of great success. With his experience in the factual entertainment arena, it is not too difficult to imagine him doing the same with CuriosityStream.
Now what?
CuriosityStream is a penny stock and holding shares come with great risk. It is unprofitable and whether it succeeds is a matter of speculation. However, I believe it has the tools it needs to succeed, such as its strong management.
Moreover, considering how fast it is growing, its shares are trading at incredibly cheap levels. For me, the risk CuriosityStream’s shares carry is worth the potential rewards in the future, which is why I’ll be continuing to add to my position.
