Up 266% in 2024, is Phunware (PHUN) a good penny stock to buy?

Phunware (NASDAQ: PHUN) stock price is having a good year, helped by the ongoing hype surrounding Trump-related companies. According to SeekingAlpha, the shares have surged by more than 266%, outperforming the Nasdaq 100 and S&P 500 indices. Other Trump stocks like DWAC and Rumble have also surged.

Phunware is a software development company that provides what it calls Multiscreen-as-a-Service (MaaS). It gained prominence when it partnered with Rumble and Trump’s campaign in 2020. Over the years, it has expanded its client list, which now includes companies like Intel, PWC, Norfork Southern, and Wynn Resorts.

Phunware has also moved into the blockchain industry, where it launched the PhunToken and PhunCoin. PhunToken is a utility token that enables consumers to monetize their digital activity while PhunCoin empowers consumers to be compensated for their data. 

However, these tokens have not gained traction among users. According to CoinGecko, Phun Token has a market cap of just $388k and a 24-hour trading volume of just $52. This makes it a tiny part of an industry with a market cap of over $1.67 trillion. The management cited the regulatory challenges for its blockchain challenges.

There are several red flags to remember when investing in Phunware. First, the company is quite overvalued considering that its revenue growth is decelerating. 

Data shows that its annual revenue came in at $21.8 million in 2022 and has slowed down to $15.8 million in the trailing twelve months. Its net loss has widened in this period. Keep in mind that Phunware revenue stood at over $41 million in 2016.

Second, Phunware is a dilution machine as it has continued to raise capital in the past few months. Last week, the company said that it would raise $5.6 million. In the same week, it priced a $7 million direct offering. In all, its outstanding shares have risen from 98 million in 2022 to almost 130 million today.

Similarly, in December, the company raised $2.8 million and I believe that this trend will continue now that the company’s market cap has soared to over $100 million. Besides, as of the last quarter, the company had $88 million in its ATM.

Third, it is always a risky move when companies move to the blockchain industry. We have seen that with companies like Bit Brother, which moved to Bitcoin mining a few years ago. 

Therefore, with Phunware, we have a company whose growth is decelerating, diluting shareholders, and one that is quite overvalued by all metrics. This makes it difficult to recommend it as an investment.

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