TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence. 

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Will it be the next big thing?

Penny stocks don’t really trade for 1 cent — it is just a term used to describe stocks that typically trade below $5 per share. There have been many big-name companies that were once penny stocks, like Intel, AMD, and Cisco Systems, to name a few.

But for every penny stock that makes it big, there are many more that fail. Investing in penny stocks is a speculative play, for the most part, because they are typically young, unprofitable companies that are prone to wild swings and volatility.

But it is worth keeping an eye on penny stocks, particularly those that exhibit some upside potential. Last year we called out Joby Aviation and SoundHound AI as top penny stocks, and both are up more than 200% over the past 12 months.

One that fits the bill is Rekor Systems (Nasdaq: REKR).

Rekor Systems at a Glance

Rekor Systems – a penny stock to watch

Rekor Systems is a leader in developing roadway intelligence systems that uses its AI-enabled computer vision and machine learning. Its Rekor One Roadway Intelligence Engine aggregates trillions of data points and transforms it into intelligence through its proprietary computer vision technology that allows users to visualize the data.

It collects data on traffic patterns, speeds, number of cars, and many other things and then processes and analyzes the data. The system provides useful insights and solutions to reduce accidents, improve traffic, and limit crime, among other things. Its clients are mostly governments, organizations, and businesses that use the data to better understand their roadways and make the necessary improvements

Recently signed customers include the Texas Department of Transportation and the Central Texas Regional Mobility Authority. It also generates significant recurring revenue from its data-as-a-service platform.

In the latest quarter, Rekor saw revenue decline 1% and in the first six months of the year it fell 3%. This is due to a few factors, including adverse weather conditions and uncertainty within the government sector.

However, it reduced expenses by 17% in the quarter and narrowed its net loss. The company expects to have positive EBITDA earnings by the end of the year, which is a significant step.

Analysts see 74% upside

Rekor Systems is moving in the right direction, and it has some technological advances that give it an edge over some of its competitors.

The stock is trading at $1.80 per share and the stock price is up 16% year-to-date and 49% over the past year. It has a median price target of $3.13 per share among the analysts that cover it, which would amount to a 74% return over the next 12 months.

Over the past 5 years it has seen almost 30% annualized revenue growth, and it projects similar growth over the next five years. One concern is the budget cuts that are taking place within local governments across the country. Budgets are getting slashed so it remains to be seen if investments in this type of solution will feel the impact.

But there is certainly a lot of upside potential in this emerging field, making this a penny stock worth watching.

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