3 Penny Stocks to Avoid as Interest Rates Rise in 2023

Prudent investors are now forced to reassess their portfolios and risk profiles. Indeed, for those invested in penny stocks, the promise of substantial returns is great. However, these stocks also offer incredibly high risk and unpredictability. Accordingly, as interest rates rise and economic conditions deteriorate, these stocks may not be the best place to hide.

These companies chosen in this article operating in diverse sectors. However, these stocks also share common characteristics that make them unsuitable investments in the current financial landscape. Indeed, I think each of these penny stocks are potential growth traps to be avoided this year.

Some struggle with low-profit margins and a widening cost basis, while others fail to yield significant revenues. However, the overall theme laid bare by these companies is that they lack the growth potential to offset their heightened risk. Thus, the risk isn’t worth the gamble for these penny stocks right now.

Muscle Maker (GRIL)

Muscle Maker (NASDAQ:GRIL) operates in the highly-competitive restaurant industry. However, this is a company without any key differentiating factors. Additionally, higher interest rates and inflation have undoubtedly cut the company’s profits, as seen via its recently-reported negative operating and net profit margins.

Although the company is in a very stable financial position with almost no debt and few current liabilities, Musle Maker is also struggling to convert its growing sales figures into profits. Additionally, the company’s earnings are negative, which is never a good thing for long-term investors.

Muscle Maker lacks any compelling catalysts that suggest a reversal of its fortunes are in order. Instead, sticky inflation and reduced discretionary spending on the horizon can be reasonably expected. This leads me to continue to hold a bearish outlook for this penny stock over the medium-term.

Powerbridge Technologies (PBTS)

Powerbridge (NASDAQ:PBTS) is an IT startup based in China that provides software and application technology services. It primarily helps companies automate their processes and workflows through cloud and on-premise solutions, with a specialized focus on the logistics industry.

If you are looking for a penny stock in the technology industry, you’d like to see rapid revenue growth. Naturally, this would be reflected in the company’s financial ratios. However, unfortunately, this isn’t the case for Powerbridge. Instead, we see a company that has reported shrinking revenues, with an incredible decline of more than 80% this past quarter.

On top of this, the company trades at a premium valuation multiple when considering its price-to-sales ratio, which stands at 5.3-times at the time of writing. Rising interest rates are known to hit tech stocks and high-multiple stocks hard, as they are often valued on their projected future earnings, which puts pressure on the bullish thesis for Powerbridge.

Acorda Therapeutics (ACOR)

Acorda Therapeutics (NASDAQ:ACOR) is a biopharmaceutical company that develops treatments for neurological disorders. These include diseases such as Parkinson’s, multiple sclerosis, and others. The company has several products, including Amprya, a medication to treat movement in sclerosis patients, and Inbrija, an inhalation powder.

Attempting to analyze the outlook of a biopharma stock without a scientific background is futile. These stocks are about as complicated as they get. Accordingly, investing in these companies might as well have the same mechanics as playing roulette.

However, everyday investors may still try to take a stab at this sector, going by the numbers. Of course, such a proposition is often a losing bet. Around 90% of all new drug treatments fail to get approval from the FDA, making the success of these companies slim, overall.

In Acorda’s case, it does have several products on the market, but this also means its revenues are tightly concentrated around only a handful of drugs, which makes ACOR stock inherently risky. Additionally, the fact that this company is one with a massive gross margin of 74.40%, but still loses money, ought to concern investors.

All in all, this is among the biotech stocks I think is best worth avoiding right now.

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.