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This under-the-radar penny stock is crushing the market. I’d buy it today

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As we spent more time at home in the past year than ever before, the entire online spending ecosystem took off. We know about names like Amazon and Just Eat Takeaway that won big during the year. 

But there are also small companies servicing this industry that are flying under the radar. One of them is the logistics-focused penny stock DX (LSE: DX), whose share price rose a whole 270% in the past year. 

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Why the DX share price is rising

What’s more, its rise continues unabated. Just yesterday, its share price rose by 5.4%, taking its total increase in April alone to over 12%. The latest impetus for DX’s share price increase followed its expansion plans. 

The company just added 300 vehicles to its fleet, taking the total number above 900. This is yet another step in its ongoing expansion. It opened six depots in the past year and more are under way as well.

Improving financials

As a result of its growing business, this penny stock’s financials have been improving. It reported a 7% increase in revenue for the half-year ending January 2 2021. It also turned profitable, after a loss in the same period the previous year. 

DX has reported strong trading in the second-half of its financial year too. Based on this it expects “another year of continued progress”

Progress may slow down (or not)

I think that as investors we do need to account for some slowing down in deliveries to individual consumers in the coming months, as normal life resumes. However, at the same time, there could be a pick-up in business demand as economic activity gathers pace. 

The company’s financial reports divides segment growth only into freight (which includes large and heavy items), and express (time sensitive and high-value deliveries). That doesn’t help me assess for sure how the situation will actually play out.

What I can infer, however, is this. If the pick-up in economic activity is indeed as strong as some forecasters currently anticipate, it should be a positive for DX. 

FTSE 100 delivery providers like Ocado or the newly-listed Deliveroo are expecting healthy growth going forward, even if there is a slowing down in pace. I would imagine that a similar scenario would play out for the likes of DX. 

The big disappointment to me in this case would be a reversion to losses. The company has only just about started making profits, after years of being loss-making. To be fair, its losses have been narrowing each year. But now that it’s making profits, a slip back could hurt investor confidence. 

Verdict for the penny stock

But that’s conjecture on my part. It may not play out at all. I’m actually bullish on this penny stock based both on the sector in which it operates and on its own performance. 

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Just Eat N.V. and Ocado Group and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.

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