Investing in penny stocks - generally, stocks that trade for less than $5 per share or have small market caps and low floats - can yield standout returns, due to their potential for significant capital appreciation. However, it's important to note that penny stocks are inherently high-risk investments and can be volatile. Many such companies tank, leaving investors to lose their capital.

However, the growing chorus of analysts warning that more established, larger-cap stocks look overpriced right now makes penny stocks seem particularly appealing for investors wary of a possible correction.

With that being said, here are three outperforming penny stocks trading under $2 - Ocugen, Inc. (OCGN), Veru Inc. (VERU), and Desktop Metal, Inc. (DM) - that still have considerable upside potential, according to Wall Street analysts. Let's take a closer look.

Penny Stock #1: Ocugen

Headquartered in Malvern, Pennsylvania, Ocugen, Inc. (OCGN) is a biotech company that develops innovative gene and cell therapies, biologics, and vaccines worldwide. Its breakthrough modifier gene therapy platform aims to treat various retinal diseases with one product, while pipeline products like OCU400 and OCU410 target inherited retinal diseases and dry age-related macular degeneration (AMD). They also collaborated with CanSino Biologics Inc. and Bharat Biotech for gene therapy co-development and commercialization of COVAXIN, a coronavirus vaccine, in the U.S. Its market cap currently stands at $407.8 million.

Ocugen shot up over 700% during the pandemic after acquiring domestic rights to sell Covaxin, but the product did not gain authorization in the U.S., leading to a sharp drop in Ocugen's shares. More recently, shares of Ocugen have rallied 176.5% on a YTD basis, substantially outperforming the S&P 500 Index’s ($SPX) 6.8% rise. 

Over the past six months, OCGN surged 267%, compared to the SPX’s 15.8% gain. Moreover, the stock trades 360.9% above its 52-week lows.

Last week, Ocugen stock surged after it received positive feedback from the European Medicines Agency (EMA) on the study design and endpoints of its pivotal OCU400 Phase 3 trial for retinitis pigmentosa (RP). This aligns with FDA clearance, marking OCU400 as the first gene therapy in Phase 3 with a broad RP indication. Approval streamlines marketing authorization in the EU, keeping OCU400 on target for BLA and MAA approval by 2026.

On Apr. 5, Ocugen received a green light from the Data and Safety Monitoring Board (DSMB) for the Phase 1/2 clinical trial of OCU410, an orphan nuclear receptor that can potentially limit damage to the retina due to dry age-related macular disease (AMD). On the Q4 earnings call on Apr. 2, Co-Founder, Chairman, and Chief Executive Officer Shankar Musunuri mentioned that the progress positions Ocugen well in the gene therapy market.

Ocugen is still pre-revenue, but ended Q4 with cash, cash equivalents, and investments totaling $39.5 million, which it expects to fund operations through the fourth quarter of 2024.

OCGN has a unanimous  “Strong Buy” rating from all three analysts covering the stock. The average analyst price target for Ocugen is $6.33, indicating a potential upside of 296.8%.  

Penny Stock #2: Veru

Veru Inc. (VERU), with a market cap of $223.95 million, is a late clinical-stage biopharmaceutical company that focuses on developing medicines for the treatment of metabolic diseases, oncology, and acute respiratory distress syndrome (ARDS).

Shares of VERU have surged 82.6% on a YTD basis, substantially outperforming the broader market. However, the stock trades 31% below its 52-week high of $1.92.

One of Veru's significant milestones includes gaining FDA approval for a Phase 2b clinical trial of enobosarm, an androgen receptor modulator designed to maintain muscle mass and physical function.

Veru stock fell over 6% after it released its fiscal Q1 earnings report on Feb. 8. Veru's net revenue decreased 14.6% year over year to $2.1 million, missing Wall Street’s projections. It narrowed its net loss to $8.3 million or $0.08 per share, from the year-ago net loss of $38.7 million, or $0.48 per share. Its cash and cash equivalents stood at $40.6 million as of Dec. 31. Analysts tracking Veru expect its net losses to narrow further in fiscal 2024 to $0.32 per share.

VERU has a consensus “Moderate Buy” rating. Out of the four analysts covering the stock, two recommend “Strong Buy,” one advises “Moderate Buy,” and one says “Hold.” The average analyst price target for Veru is $3.25, indicating a potential upside of 148%. 

Penny Stock #3: Desktop Metal

Headquartered in Burlington, Massachusetts, Desktop Metal, Inc. (DM) manufactures and sells additive manufacturing technologies for engineers, designers, and manufacturers in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific region. Its market cap currently stands at $283.1 million.

Shares of DM have risen more than 13% on a YTD basis, outperforming the SPX. Over just the past three months, Desktop Metal shares have surged 42.6%.

The stock currently trades at 1.66 times sales – lower than its five-year average of 22.50x.

Desktop Metal shares rose about 5.8% on Mar. 15 as investors reacted to its Q4 2023 results. Its revenue increased by 22% sequentially to $52.3 million, beating the Wall Street estimates by 3%. Desktop Metal also narrowed its non-GAAP net loss by more than half on a year-over-year basis to $10.9 million in Q4. Additionally, the company reduced its burn rate by 25% and increased its cash, cash equivalents, and short-term investments to $84.5 million.

For fiscal 2024, the company anticipates revenue to range between $175 million and $215 million. Analysts tracking Desktop Metal expect the full-year loss to slim down to just $0.15 per share in fiscal 2024.

DM has a consensus “Moderate Buy” rating. Out of the three analysts covering the stock, two recommend “Strong Buy,” and one advises “Hold.” The average analyst price target for Desktop Metal is $2.37, indicating a potential upside of 178.7%.

On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.