The Motley Fool

3 reasons this penny stock can rally now. But would I buy?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Portrait of construction engineers working on building site together
Image source: Getty Images

Equipment rental company HSS Hire (LSE: HSS) had a disappointing start to 2021. After reaching multi-year highs in mid-2020, this penny stock had crashed to sub-10p levels by year end. 

But I think things may be starting to change, which probably explains why HSS Hire’s share price has started inching up.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Here are three positives I see:

#1. Construction is resilient

The construction industry is in a resilient place. Last week, the UK’s economic growth numbers for January showed that construction was the only sector to grow as the country entered the third lockdown. It grew by 0.9% from the month before, while the UK economy, in contrast, shrank by 2.9%. 

I think this bodes well for HSS Hire, which is closely linked to construction. Incidentally, the company’s share price has spiked since the number was released, which I think may not be a coincidence. 

#2. Policy push

The future looks bright too. Policy makers are clearly doing their bit. The UK budget for 2021, released earlier in the month, saw an extension of the stamp duty waiver. Easier availability of loans with 5% deposit is also a positive policy measure for real estate, which is already on fire.

According to the FTSE 100 real estate e-marketplace Rightmove, the gap between property demand and supply right now is the biggest it has been in 10 years. Considering the link between property and construction, I think there could be beneficial ripple effects on the sector, another plus for HSS Hire. 

#3. Pivoting penny stock

While last year has been pretty bad for HSS hire, I like that it has accelerated its digital strategy. Because of this, 30% of its new contracts were raised through digital channels for the half-year ending 27 June 2020. 

I think this is an important development not just because it gives a better shot at growth during the long-drawn-out pandemic but also because digital will increasingly be the way business is done in the future

The downside for HSS Hire

While these developments give HSS Hire a chance to get out of its current funk (its revenue fell for the half-year and it reported a net loss), I think it is essential to look at its performance in earlier years too. 

The company has reported a loss in four of the last five years, including the half-year numbers for last year. The fact that it had showed a small profit in 2019 makes me hopeful that it can make a comeback, but very cautiously so. 

Also, its debt is high. Its debt leverage, which is net debt divided by pre-tax earnings, is at 2.9 times, almost unmoved from 2019. HSS Hire aims to bring it down to 2.5 times.

Because of this, it has decided not to pay a dividend, which for now also makes the stock less attractive. 

The upshot

Clearly, in terms of financials, HSS Hire has much to sort out. While positives are piling up for it, I am not yet convinced of its long-term prospects.

The high-calibre small-cap stock flying under the City’s radar

Adventurous investors like you won’t want to miss out on what could be a truly astonishing opportunity…

You see, over the past three years, this AIM-listed company has been quietly powering ahead… rewarding its shareholders with generous share price growth thanks to a carefully orchestrated ‘buy and build’ strategy.

And with a first-class management team at the helm, a proven, well-executed business model, plus market-leading positions in high-margin, niche products… our analysts believe there’s still plenty more potential growth in the pipeline.

Here’s your chance to discover exactly what has got our Motley Fool UK investment team all hot-under-the-collar about this tiny £350+ million enterprise… inside a specially prepared free investment report.

But here’s the really exciting part… right now, we believe many UK investors have quite simply never heard of this company before!

Click here to claim your copy of this special investment report — and we’ll tell you the name of this Top Small-Cap Stock… free of charge!

Manika Premsingh owns shares of Rightmove. The Motley Fool UK has recommended Rightmove. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.