Penny stocks are sometimes cheap for a reason. On many occasions though, at the right time, cheap stocks simply provide an entry point to a temporarily undervalued company that could return dividends to investors.

Making moves today is Pier 1 Imports Inc. (NYSE:PIR). In fact, at the time of writing, PIR stock is soaring up 25% on the week. Is this simply a cheap stock or an undervalued one?

Let’s dig in.

Penny Stocks to Watch: Pier 1 

Okay. PIR shares tanked in December. There’s no point in sugar coating it. This penny stock dropped approximately 70% overnight on the 19th. A massive fall from $1.11 to $0.30 USD. Ouch. The reason was the announcement of Q3 results that missed estimations along with the departure of its then CEO Alasdair James.

Q3 comparable sales were down 10.5% and inventory down 7.3% year-over-year.

The retailer has been trying to mend its ways and James had implemented an ambitious plan, unveiled in April. Eight months on and he has stepped down, and sales are slumping further. The sell-off is understandable. Currently, all we know now is that the board has begun a process to “evaluate a full range of strategic alternatives.”

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Buying Low

But this week, investors are clearly taking advantage of the dip; buying the PIR penny stock at its very low price. So clearly some feel this company has potential. Wishful thinking? Perhaps. 

At a time when America’s economy is growing, e-commerce is booming, wages and employment are increasing, Pier 1 should really be seeing this reflected in its numbers. But it is not. So what does that say? 

According to Bloomberg: “If retailers aren’t doing well in an economy like this, then it’s going to be even harder to stay afloat if consumer sentiment takes a turn for the worse.”

It’s speculative how PIR stock will deliver. This is very risky because Pier 1 has been faltering for years. It will take a mammoth turn around to change this cheap penny stock into more than just that.

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