Known for their uncommonly pronounced risk/reward profile, penny stocks all too often entice investors with their low prices and potential for significant returns, only to fail to live up to those expectations. The world of penny stocks is also characterized by pump-and-dump and other scams, facilitated by the fact that most penny stock companies do not have an extensive history of financial reporting or an established brand name and presence.

This is all to say that investors should be cautious of any penny stock, particularly one that appears to be too good to be true, as it might be part of a scam worth hundreds of millions of dollars. On the other hand, investors who are comfortable taking on a higher degree of risk and prepared to research potential investment targets thoroughly may uncover tremendous deals.

While there is no guarantee a penny stock investment will pay off, below are three companies trading for under $5 per share that stand out from the crowd.

Vuzix: Major New Contract, Retail Product Launch

Vuzix Corp. (NASDAQ: VUZI) designs and builds smart glasses and related augmented reality products. While many people tend to think of these products as designed for everyday consumers, Vuzix focuses on applications in the defense and medical spaces in particular.

In late November 2024, Vuzix announced a major contract with an unnamed U.S. aerospace and defense company to supply customized waveguides for use in heads-up displays. In the same week, the company reported the general availability of its Z100 smart glasses for the everyday wearable market and Q3 2024 earnings results. In the latest quarter, the company successfully reduced its quarterly cash operating expenses by 28% as it also received a helpful equity investment of $10 million, with an additional $10 million to come. Together, these factors help to sustain operations as Vuzix continues to scale its products and wins more contracts.

Given this late-November flurry of positive news, it's unsurprising that Vuzix posted five-day returns of nearly 88% as of Nov. 26, 2024, roughly matching a 52-week high achieved in December 2023. 

GeoVax Labs: Promising Trial Results, Broad Pipeline

GeoVax Labs Inc. (NASDAQ: GOVX) is a clinical-stage biotech firm working to develop vaccines against COVID-19, HIV, and other infectious diseases, as well as treatments for certain solid tumor cancers. Many small biotech companies without a robust line of products already commercially available draw investor attention when they report promising trial data, and GeoVax is no exception.

In the case of GeoVax, investors have taken note that its GEO-CM04S1, a dual-antigen COVID vaccine candidate, has shown positive Phase 2 trial results in chronic lymphocytic leukemia (CLL), a common form of leukemia in adults. Besides that, the company also has a vaccine candidate against mpox and smallpox in its pipeline. It was also recently the recipient of a BARDA Project NextGen Award valued at nearly $400 million to support a major comparative trial.

Given the strong potential across multiple products in development, GeoVax has received a Buy rating from seven analysts across Wall Street, who have also assigned it a consensus price target of $14.20, more than 400% higher than current price levels.

Cardiol Therapeutics: Late-Stage Trial Phase for Potential Therapeutic

Cardiol Therapeutics Inc. (NASDAQ: CRDL) is another emerging biotech with promising products in development. In this case, one drug candidate to keep an eye on is CardiolRx, which has seen strong results in a Phase 2 study for the treatment of recurrent pericarditis. The company is preparing for late-stage clinical trials, an important step prior to developing the drug for the market.

Cardiol was also recently added to PRISM Marketview's Emerging Biotech Index, which further bolsters the company's profile. CRDL was up about 72% in the year ending Nov. 26, 2024, although it has lost nearly half its value since June.

Sustainability Is Key

For the penny stocks above—and any other companies without a steady, established stream of revenue—funding continued operations, keeping costs to a minimum, and developing a path toward profitability are key. Before investing in any penny stock, investors should carefully research a potential target for firm signs that it is making progress in each of these areas.