CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

Top 10 ASX penny stocks for traders to watch in 2021

We explain the potential risks, rewards and everything else traders need to know about some of the ASX's most volatile and promising penny stocks for the year ahead.

What are penny stocks?

Penny stocks represent small, high risk and high reward opportunities for investors, speculators and traders.

As the name would suggest, penny stocks tend to be very small companies. While share price is important, it’s best to think of penny stocks in terms of market valuation. Generally speaking, to be considered a penny stock you’re looking at a company valued from between a few million to the upper-end of a billion.

Apart from being small, ASX penny stocks are often thinly traded, loss-making, considered speculative in nature, have limited analyst or no coverage, and as a result: are usually significantly riskier than their mid and large-cap counterparts.

With that in mind, investors should never invest more than they are willing (or able to lose) when trading penny stocks – or any stock or financial instrument for that matter!

Penny stocks are often interchangeably referred to as: micro-cap stocks, small-cap stocks, and nano-cap stocks.

In saying all this, spotting a winning penny stock early can provide significant rewards to patient and risk tolerant investors. The lack of analyst coverage and liquidity may prove especially fortuitous: spotting value where other investors are afraid to venture has proven a lucrative strategy for some of the world’s most famous investors.

For example, market darling a2 Milk (ASX: A2M) started its life as a penny stock – trading for just 56 cents in 2015. Yet as the company’s revenue and earnings rose – and as the broader opportunity in China’s IMF market became apparent to yield hungry investors – the company’s stock climbed in-step.

Of course, for every A2 success story, there are a string of failed ASX penny stocks that still trade for just pennies – or less.

Top 10 penny stocks on the ASX

Now that we have examined what exactly a penny stock is, we look at some of the ‘Top 10’ penny stocks that traders and investors should have on their watch lists in 2021.

  1. Aeon Metals Limited
  2. RMA Global Limited
  3. Doctor Care Anywhere Group
  4. HRL Holdings
  5. Australian Agricultural Company
  6. Life360 Inc
  7. Laybuy Group Holdings
  8. Carbon Revolution
  9. MLG Oz Limited
  10. City Chic Collective

All of the companies on this list either have Buy ratings or Buy (Speculative) ratings from broker Bell Potter (BP).

Company

Ticker

Sector

BP Price target

Aeon Metals Limited

AML

Materials

$0.11

RMA Global Limited

RMY

Information Technology

$0.38

Doctor Care Anywhere Group

DOC

Healthcare

$1.51

HRL Holdings

HRL

Industrials

$0.15

Australian Agricultural Company

AAC

Consumer Defensive

$1.55

Life360 Inc

360

Technology

$10.75

Laybuy Group Holdings

LBY

Technology

$1.20

Carbon Revolution

CBR

Consumer Discretionary

$1.80

MLG Oz Limited

MLG

Industrials

$1.06

City Chic Collective

CCX

Consumer Cyclical

$4.10

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Aeon Metals Limited (AML)

Aeon Metals is an ASX-listed resources company with a portfolio of projects spanning copper, cobalt, gold, lead zinc, and silver.

The company's cornerstone asset – which it owns outright – is the copper-cobalt Walford Creek Project. The company describes this as 'one of the highest grade significant cobalt deposits in Australia.'

Despite that, the company remains small (market capitalisation of $38.41 million) and its stock volatile, with Aeon trending 55.00% lower year-to-date. Bell Potter nonetheless has a favourable outlook on the company, assigning Aeon a Buy Speculative rating and $0.11 price target.

RMA Global Limited (RMY)

RMA Global – trading under the ticker RMY – operates in the online real estate services space, providing businesses and individuals with real estate reviews, ratings and data analytics. More recently the company has pushed into other revenue generating opportunities, such as mortgage broking and 'promoter for listings' services.

The company’s operations currently span Australia and the US, and RMA has recently entered the New Zealand market. In 2021 the company booked $11.3 million in total revenues, representing a 52% year-on-year increase, while promoter revenues jumped 153% to come in at $3.2 million. In FY21 the company saw a 27.9% jump in reviews on its platform, hitting 1,057,600.

Despite that growth, the stock has faced steady selling pressure in 2021, with the stock down 26% year-to-date, last trading at $0.22 per share, giving the company an implied market capitalisation of $103 million.

Doctor Care Anywhere Group (DOC)

After listing on the ASX on 4 December 2020 there was initially robust demand for Doctor Care Anywhere’s stock – with the share price up firmly in the months following its listing.

As the name suggests, Doctor Care is a telehealth company that offers customers a host of services, ranging from ‘GP appointments to medical support overseas.’

On December 22, 2020, the company announced a partnership with Allianz Partners that would embed 'Doctor Care Anywhere into their UK and European international private medical insurance policies' – allowing Allianz policy holders access to Doctor Care telehealth services.

Mind you, while the company experienced a sharp post-IPO share price spike, investors have cooled on the stock in recent times, with it falling 36% in calendar 2021.

In the second quarter of FY21, the company reported £4.8 million in revenue against a gross profit margin of 39.4%.

HRL Holdings (HRL)

With operations spanning Australia and New Zealand, HRL is centrally involved in the provision of laboratory, sampling and data management services.

Over the last year, there has been good demand for the company's services, with HRL in FY21 reporting:

  • Revenues of $34.6 million, up 5.5%
  • Underlying earnings (EBITDA) of $7.7 million, up 11%
  • Operational cashflow of $5.5 million

Even so, the company's share price performance remains lumpy and its shares thinly traded, with the stock down 21% year-to-date, to last trade at $0.11 per share, implying a market capitalisation of $54.38 million.

Australian Agricultural Company (AAC)

As the company notes on its website: ‘AACo owns and operates Australia’s largest cattle herd with around 400,000 head spread over our properties across Queensland and the Northern Territory.’

Despite that lofty title, the company has seen its share price steadily decline over the last five years, falling around 12% in that period. That share price performance didn’t stop AAC from delivering a set of good full-year FY21 results to the market, in May 2021.

Here the company posted an operating profit of $24.4 million, operating cash flow of $18.4 million and statutory earnings (EBITDA) of $99.3 million – all higher on the prior corresponding period.

'This year will go down as one of the most challenging on record for many companies and AACo is no different, so to post a positive result in commendable,' said MD and CEO, Hugh Killen.

Bell Potter has a target price of $1.55 on the Australian Agricultural Company.

Life360 Inc (360)

Life360 is a social network with a twist: its main target is families and its primary focus Saftey. Overall, its proven relatively successful thus far, with 360 recently reporting it had notched up 32 million active users per month.

Rising 134% since January 2021 and last trading at $9.14 per share, the company has an implied market capitalisation of $1.41 billion.

Breaking down the company's recent interim results, for the first-half of fiscal 2021 Life 360 reported:

  • Revenues of US$48.0 million, up 27%
  • An underlying net loss of US$5.1 million
  • Cash on hand stood at US$50.8 million at the close of June 30

Laybuy Group Holdings (LBY)

Since the initial hype of the September 2020 IPO has died down, the Laybuy share price has trended lower, at the time of writing trading at the $0.48 per share mark. For reference, Laybuy ‘s IPO offer price was $1.41 per share.

Despite that share price performance, as with many others in the BNPL sector, the company has continued to notch up impressive operational growth, for the first quarter of 2021 reporting:

  • Transaction volumes of NZ$184 million, up 58% year-on-year
  • Revenue of NZ$10.4 million, up 70% year-on-year
  • A net transaction margin of 2.0%, a substantial increase year-on-year
  • Active customers of 356 thousand and active merchants of 4.8 thousand

Bell Potter has a $1.20 price target on LBY and a Speculative warning.

Carbon Revolution (CBR)

Listing on the ASX in late 2019, Carbon Revolution (ASX: CBR) is a lightweight wheels manufacturer focused on the luxury market.

In fiscal 2019, the company made a bold prediction, forecasting that its revenue would hit $62.2 million in FY20. These lofty forecasts, said the company at the time, would be driven by 'wheel sales and associated engineering services and customer-owned tooling.'

The pandemic threw a spanner into those plans, with the company falling significantly short of those forecasts. In FY21 the company sold 12,749 wheels, delivering revenue of $34.9 million in the process. The company concurrently posted negative earnings (EBITDA) and cash flow.

While the stock has plunged 55% in CY21, Bell Potter remains bullish on the name, assigning it a Buy speculative rating and $1.80 price target.

MLG Oz Limited (MLG)

MLG Oz is an industrial supply chain solutions company based in Western Australia. The company provides its services to some of Australia's highest profile resources companies, including FMG, BHP, and Boral. In August, the company reported a solid set of FY21 financial results, revealing:

  • Pro forma revenues of $254.0 million, ahead of prospectus forecasts
  • Pro forma earnings (EBITDA) of $42.7 million, ahead of prospectus forecasts
  • A fully-franked final dividend of 1.71 cent per share, due to be paid on 1 October 2021

Since listing in May, 2021, the stock has faced significant selling pressure, falling 27% in that period, to last trade at $0.95 per share. Bell Potter nonetheless remains optimistic, assigning the stock a price target of $1.06 per share and a Buy rating.

City Chic Collective (CCX)

2020 proved to be a volatile year for City Chic – beyond the pandemic. During the middle of the year much hype around the company centred on City's potential acquisition of Catherines' eCommerce assets. That acquisition ultimately fell through, a fact that disappointed investors, with the stock falling over 15% in response.

Despite those issues, 2021 turned out to be a year of growth for the company – both in terms of operational performance and share price performance.

On that first count, City saw all of its key metrics improve drastically in FY21: Global sales hit $258 million, implying a year-on-year increase of 32.9%, online sales penetration reached 73% and the company grew its active customer-base to 1.07 million.

On the bottom-line, FY21 underlying earnings (EBITDA) reached $42.4 million, while underlying profits (NPAT) came in at $24.9 million.

Investors have responded bullishly to these developments, the stock is up 91% year-to-date, last trading at $6.31 per share, giving City Chic Collective an implied market capitalisation of $1.46 billion.

How to identify and pick the best penny stocks in Australia

Regardless of whether you take a short or long-term approach to trading or investing, knowing how to identify and pick the ‘top’ ASX penny stocks has a number of key benefits. Here’s how to pick the top penny stocks in Australia:

  • Start by eliminating mid and large-cap companies. Any stocks with a market capitalisation below $1 billion is typically considered a penny stock.
  • Analyse the company’s share price history. Next, you want to see if a company’s share price is low because it’s a relatively young company – or if it’s an old company that has witnessed significant declines.
  • Examine the fundamentals: in line with the above point, is the company growing its revenues or are they declining? If the company is currently loss-making (as many ASX penny stocks are) read up on management commentary: is there a clear path to profitability? To growth?
  • Are there positive or negative macro conditions at play? For example, investors may potentially want to avoid penny stocks involved in out-of-favour industries, such as airline stocks. That’s not to say that out-of-favour sectors aren’t capable of providing investors with market-beating returns, only that it is often preferable to look for companies in sectors that are poised to grow – not decline.

How to buy and trade penny stocks in Australia

Now that you’re familiar with some of Australia’s most promising penny stocks and how to pick and identify them, below we look at how you can buy, sell and trade them for yourself.

How to buy ASX penny stocks

Whether you’re a trader, speculator or investor – buying and selling any of the ‘Top 10’ penny stocks we have discussed today can be easily done on IG’s proprietary trading platform. To start your buying journey today, simply:

  • Open a share trading account with IG
  • Log into the IG account and navigate to the ‘My IG dashboard’
  • Fund your newly created share trading account. Open the classic platform on the share trading account, go to the 'finder' panel on the platform, type in and select which growth stock you would like to buy
  • Click on the deal ticket: where the ‘on exchange’ option will appear. On exchange means interacting directly with the relevant exchange.

How to trade penny stocks in Australia

Besides buying the ‘Top 10’ ASX penny stocks we have discussed today, IG’s trading platform also gives more risk tolerant investors and traders the flexibility to go LONG and SHORT – utilising CFDs – to potentially capitalise on the underlying price movements of an asset.

Importantly, as a leveraged product, while CFDs give investors the chance to maximise their trading gains, it also gives them the chance to maximise their losses.

To begin trading penny stocks, simply:

  • Create an IG trading account or log in to your existing account
  • Look for the ASX penny stock you would like to take a short or long position in
  • Choose your position size
  • Click on ‘sell’ or ‘buy’ in the deal ticket
  • Confirm the trade

Penny stocks summed up

As we noted at the start: investing in ASX penny stocks can be an exhilarating experience. A great penny stock can help investors multiply their money many times over – far outpacing the gains an investor is likely to witness from a large-cap stock.

The likes of Afterpay (ASX: APT), Wisetech (ASX: WTC) and a2 Milk (ASX: A2M) come to mind when one thinks of ASX penny stocks that have successfully transitioned from obscurity into the limelight.

The risks and rewards of ASX penny stocks

Yet for every market darling that has made it to the top: there are a string of no-name failures. In some cases, investors lost some – or in extreme cases – all of their capital investing in penny stocks.

The line between going big or going bust seems most apparent in the micro-cap market.

As such, investors should take extra caution when investing in ASX penny stocks, thoroughly research any promising opportunities themselves, and never invest more than they are willing or able to lose.

Click here now to sign up for a Live Trading Account and begin your trading journey with IG today.

Not ready to start trading real stocks but still eager to get involved in the markets? Click here now to get access to $20,000 in virtual funds and practise trading ASX penny stocks with an IG Demo Account today.

Last updated : 2021-09-14T03:11:07+0100


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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