UPDATE: The original version of this article mistakenly stated that [email protected] Capital was listed on AIM rather than Main Market.
Three ‘trending’ penny shares have had some significant catalysts this month, ranging from a suspension of shares to a new listing in the US on the NASDAQ.
Recently, I pitted three FTSE 100 portfolio staples against each other and now I would like to do the same with 4D Pharma (LSE: DDDD), Novacyt (LSE: NCYT), and [email protected] Capital (LSE: SYME).
I am going to look at these shares as if I were in a casino and I was dealt all three. What company would I hit again (buy more), hold (keep) and fold (sell)?
Novacyt, a medical diagnostics company, was a star of the stock market last year – and even with the recent pull back to 720p, it is still 400% up on the year. The Novacyt share price sold off after its earnings report even though it had very positive sales growth to £277m from £11.5m in 2019. It wasn’t numbers but guidance that unsettled investors, as it stated that it expects sales of Covid-19 products to be strong for most of 2021 but it wasn’t clear beyond that.
I am not sure how Novacyt will utilise its increased cash reserves or its specialism in Covid-19 testing, therefore it is hard to wage where fair value is. I do believe that Covid-19 testing is here for the foreseeable future. Mr. Dealer, I’ll hold.
[email protected] Capital (SYME) is a fintech firm; it allows companies to make money from their inventory. The idea is to allow businesses to generate cash flow from their unsold goods.
At the end of January, SYME requested a suspension of the listing of its shares pending publication of its results which meant for over a month, investors could not buy or sell SYME shares. After due diligence from the FCA, the shares recently started trading again at around 0.55p. Due to its true penny share status, there is arguably plenty of upside if SYME can prove its business model to be profitable. However, this would be a speculative investment and shares this size can be illiquid, which generally means wider bid-ask spreads, and greater price volatility. Mr. Dealer, I fold.
4D Pharma is a company pioneering development in the area of the human microbiome (the bacteria found in our gut).
Recently, 4D Pharma completed a merger with a US investment vehicle, which provides the company with a quote on the tech- and biotech-focused NASDAQ stock market under the ticker $LBPS. By dual-listing in the US, this should introduce the firm to a new pool of prospective investors.
Key figures within the business own 12.7% of the company which I believe demonstrates their confidence in 4D Pharma shares. Currently, 4D is not profitable and it is not forecast to become profitable over the next three years. Trading at 130p, this is a long-term play for me. Mr. Dealer, I’ll buy more.
Penny shares: risk v reward
Companies listed on the Alternative Investment Market (AIM), such as Novacyt and 4D Pharma, are provided with more regulatory flexibility than those on the main market so you can expect greater volatility. However, with careful diligence, the AIM can be a lucrative market for discerning stock pickers.
Thus, when faced with the decision to hit, hold or fold, I would hit 4D Pharma, hold Novacyt and sell SYME.