One penny stock I’m having second thoughts about

The flag of the United States of America flying in front of the Capitol building

I started building my position in DermTech (NASDAQ: DMTK) in 2021. The share price was $53. Since then, its shares have fallen considerably, now valued at $1.69 apiece. This places it firmly in penny stock territory. A penny stock is a share of a company that is trading for a very low amount: under US$5 or £1.

I’ve consistently bought DermTech shares since then at an average price of $32.73. That means I’ve lost almost 95% of my total investment in its shares. This fact alone is a strong reason for me to reconsider my position.

However, I have started developing many other concerns with holding its shares.


Back in 2021, DermTech was considered a promising growth stock, with huge potential.

This is because it created PLA, an innovative product with the ability to redefine the way skin cancer gets tested.

PLA is a small patch that is placed on the skin being tested for a few seconds. It is then sent to the company’s commercial lab for precise analysis. Within 72 hours, DermTech then sends a report to the patient’s doctor, who take the next steps.

What I like about this is that is it far superior to the status quo. Currently, skin cancer is diagnosed with a visual inspection and an invasive biopsy. This is highly inaccurate and most patients don’t enjoy the procedure.

However, PLA is much easier to use, more accurate, and non-invasive. For example, it has less than a 1% chance of reporting a false negative, compared to an 11%-19% chance from the visual inspection. It also detects 91%-95% of positive cases compared to just 68%-85% from the traditional method.

This is the reason I invested in DermTech stock in the first place. However, a great product doesn’t always translate to a great business.


For PLA to succeed, DemTech needs to convince doctors to start adopting it. However, it has been struggling with this for a while.

In fact, revenue has declined in the most recent quarter, from $4.23m a year ago to $3.98m this year. As an investor, this has been disappointing.

While this isn’t great, it’s even more alarming how much DermTech is spending to generate this revenue. It spent $3.97m in direct costs and $32.14m in operating expenses. These are up from $3.27m and $30.8m a year ago, respectively.

So, while the revenue it is making seems trivial in comparison to how much it is spending to make it, expenses are still continuing to rise even as sales fall.

In total, DermTech made a net loss of $31.36m in the last quarter. It only has cash of $42.79m left on its balance sheet. Therefore, it needs to start growing sales quickly or raise more cash. Otherwise, its future could be bleak very soon.

Now what

Ultimately, DermTech’s future is on the line if it’s unable to turn around its future anytime soon. My position in its shares is relatively small compared to what it once was, so I am planning on holding my shares.

DermTech is a highly risky play right now and it could all go wrong. However, if it doesn’t, its shares could really take off. It estimates that its total addressable market is $10bn. With a market cap of $61m, it only needs to take a sliver of this market for its shares to skyrocket.

The post One penny stock I’m having second thoughts about appeared first on The Motley Fool UK.

Don’t miss this top growth pick for the ‘cost of living crisis’

While the media raves about Google and Amazon, this lesser-known stock has quietly grown 880% – with a:

  • Greater than 20X increase in margins
  • Nearly 60% compounded revenue growth over 5 years – more than Apple, Amazon and Google!
  • A 3,000% earnings explosion

Of course, past performance is no guarantee of future results. However, we think it’s stronger now than ever before. Amazingly, you may never have heard of this company.

Yet there’s a 1-in-3 chance you’ve used one of its 250 brands. Many are household names with millions of monthly website visitors, and that often help consumers compare items, shop around and save.

Now, as the ‘cost of living crisis’ bites, we believe its influence could soar. And that might bring imminent new gains to investors who’re in position today. So please, don’t leave without your FREE report, ‘One Top Growth Stock from The Motley Fool’.

Claim your FREE copy now

setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#FFFFFF’);

More reading

Muhammad Cheema has positions in DermTech. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.