7 Penny Stocks to Sell in June Before They Crash and Burn

“Price is what you pay, value is what you get.” This famed Warren Buffett investing maxim can serve you well when determining whether a penny stock (stock trading for $5 per share or less) is worthy of a buy, or if it is one of the penny stocks to sell.

Investors often make the mistake of conflating a low price with a low valuation/high upside potential. Yet while this can be true sometimes, scores of penny stocks are overvalued, with dubious upside potential, especially in today’s market.

The recent fading of macro worries has investors shifting back to a “risk-on” state of mind. In turn, this has helped many provide support, and in some cases, a boost, to riskier, less fundamentally-strong penny stocks. However, it is up for debate whether the latest sentiment shift will last. Market volatility could return, with more speculative names the hardest hit. Even if the bull market has truly returned, that doesn’t mean investors will ignore company-specific issues as they did with many “meme stocks” during 2021.

With this, consider it wise to sell penny stocks in June. In particular, these seven penny stocks, as each one is overvalued, with weakening fundamentals.

AMC Entertainment (AMC)

During May, AMC Entertainment (NYSE:AMC) fell back into “penny stock territory,” after falling below $5 per share. Some may view this as an opportunity to scoop up the movie theater operator’s shares before their next “meme rally.”

However, even as factors like rising market optimism and strong box office weekends are helping to give AMC stock some slight boosts, I wouldn’t bank on shares making an epic move back to loftier price levels. In fact, even if the overall market continues to trend higher, or if the movie theater industry continues to make its sluggish post-Covid recovery, further declines for this stock are likely.

Why? Since the height of “meme mania,” AMC has been steadily moving back to prices in line with its underlying value. As I have argued previously, between bad fundamentals and high shareholder dilution, this underlying value could be well below $1 per share.

Mullen Automotive (MULN)

Admittedly, it is far too late to say that Mullen Automotive (NASDAQ:MULN) has crashed and burned. On a split-adjusted basis, shares in this electric vehicle (or EV) company have fallen from over $300 per share to around 50 cents per share today.

Even so, don’t assume MULN stock now has limited downside and ample upside. A further move toward zero appears very likely. At least, that’s the view of InvestorPlace’s Thomas Yeung. Recently, Yeung laid out the bear case for Mullen, arguing that many signs point to the EV maker being in its “final death spiral.”

These include delays in obtaining new financing, cash burn issues, and waning enthusiasm about MULN from retail traders. Even as press releases from the company paint an image of an up-and-coming EV startup making progress, consider it best to follow Yeung’s advice, as this is one of the top penny stocks to sell.

Newegg Commerce (NEGG)

Newegg Commerce (NASDAQ:NEGG) may not have the name recognition of AMC and Mullen, but this online computer and electronics retailer also experienced a brief wave of popularity in the meme stock community. However, those days have long since passed.

At point trading for above $60 per share during the meme era, NEGG stock now trades for just over $1 per share. Yet despite today’s bargain-basement price, Newegg Commerce is arguably one of the overvalued penny stocks. Reporting a big swing to unprofitability in 2022, and guiding for further net losses in 2023, NEGG isn’t not low-priced relative to earnings.

The stock also trades for nearly three times its book value, so you can’t say that it’s cheap relative to its underlying assets. Poor fundamentals and lackluster prospects suggest taking a hard pass on Newegg, even as it tries to tout its generative artificial intelligence (or AI) bona fides.

Paramount Group (PGRE)

Recently, I argued that Paramount Group (NYSE:PGRE), an owner of office buildings in New York and San Francisco, was one of the top real estate investment trusts, or REITs, to sell. As its shares today trade at the upper tier of penny stock price levels, this is also one of the top penny stocks to sell.

Even among the headwind-laden office REITs, PGRE stock may be one of the riskiest. As Crain’s New York Business reported in May, Paramount lost a key tenant in one of its flagship buildings earlier this year and is now contending with the loss of its single-largest tenant, now-defunct First Republic Bank (OTCMKTS:FRCB).

Although it’s possible that office REITs have become oversold, making contrarian wagers on a few of the higher-quality penny stock REITs is something worth looking into. When it comes to PGRE, though, it may be best not to roll the dice.

Rite Aid (RAD)

After a sharp drop in price from mid-2022 to early-2023, Rite Aid (NYSE:RAD) shares have seemingly found a floor in recent months, but even as the stock holds steady, if you happen to own RAD today, you should consider cashing out, pronto.

Overleveraged and unprofitable, RAD is for sure one of the high-risk penny stocks. For years, investors have tried to call a bottom in the pharmacy chain’s shares, only to find out that, instead of a successful bottom-fishing expedition, they’ve instead found themselves holding a falling knife.

As the Wall Street Journal reported back in April, Rite Aid is strapped for cash, leaving it vulnerable given its high debt position. A lack of cash also limits the company’s ability to adapt to changing trends in healthcare. Barring success with its latest cost-cutting moves, the days of big price declines with RAD stock are likely not over.

Vroom (VRM)

Among speculative penny stocks receiving a jolt from the market’s recent “risk-on” heel turn, Vroom (NASDAQ:VRM) has received one of the largest. Since the start of June, shares in the online automotive retailer have gained by around 43.75%.

Yet while VRM stock, hard-hit due to concerns about a post-bubble bust in used car sales, seems to be kicking off a recovery, it is perhaps better to consider it one of the penny stocks to sell. Mostly, because prospects for the used auto market remain bleak. Vehicle prices keep coming down, as high inflation and interest rates continue to dampen demand.

Sell-side forecasts call for Vroom to report per-share losses in excess of its stock price this year, as well as in each of the next two years. If (not when) fundamentals are top of mind again with VRM, shares could cough back these recent gains, and then some.

Exela Technologies (XELA)

If MULN stock is potentially in a “final death spiral,” so too is Exela Technologies (NASDAQ:XELA). While operating in a completely different industry, this provider of transaction processing and other outsourced services faces similar hurdles. Many of these risks are already priced into XELA stock. Shares are down by more than 99% over the past year. Still, that doesn’t mean it’s all uphill from here. As I argued last month, Exela is struggling to get out of the red, all while its balance sheet remains weighed by a high level of long-term debt.

Although a recently-announced debt exchange offer could lessen the load, through the swap of existing notes for new notes at 80 cents on the dollar, even if all these notes are exchanged, it’s possible outstanding debt still exceeds the company’s underlying value. Taking into account these issues, a further spiral may be in store.

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