Amigo Holdings: should I buy this penny stock?

Penny stock Amigo Holdings has seen a big rise recently, up about 180% over the last three months. Edward Sheldon looks at whether he should buy the stock.

| More on:

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.

One UK penny stock that’s had a great run recently is Amigo Holdings (LSE: AMGO), a guarantor loan company. Over the last three months, its share price has risen from around 8.5p to 24p – a gain of around 180%. Over one year however, the stock is only up around 5%.

Should I buy this penny stock for my portfolio? Let’s take a look at what’s driving Amigo’s share price higher.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Why Amigo’s share price rose

In my last article on Amigo Holdings, published on 9 March, I mentioned that one of the key risks surrounding the company was complaints from customers. Between October and December last year, the Financial Ombudsman Service received more than 10,000 complaints about the firm, up from just over 300 in the same period a year before.

Late last year, Amigo decided that the best way to address this problem was through a ‘Scheme of Arrangement.’ This is a court-approved agreement between a company and its shareholders or creditors. This would cap its potential compensation payments in relation to the complaints and allow Amigo to restructure itself.

For a few months, things were going to plan for Amigo. In late March, for example, the UK’s main financial regulator, the Financial Conduct Authority (FCA), stated that it had completed its assessment of the terms of the Scheme of Arrangement and said that it was not proposing to take any additional regulatory action that might stop the scheme. This saw the AMGO share price move higher.

However, last week, Amigo advised that it had received a letter from the FCA stating that the regulator felt the scheme was unfair and that it planned to oppose it at a final court hearing (which takes place tomorrow). This was obviously bad news for Amigo. If its Scheme of Arrangement fails, the company is likely to go bust, according to CEO Gary Jennison. On the back of this news, Amigo’s share price fell over 20%.

It’s fair to say that this recent development adds risk to the investment case. However, it’s hard to know if the FCA is serious about stopping the move. If the regulator was to stop it, and Amigo went bust, it would not be a good result for claimants. We are likely to have more clarity on the situation tomorrow after the court hearing. If the scheme is approved, there will be less uncertainty. 

My view on Amigo Holdings

Looking at what’s going on at Amigo right now, I see the penny stock as quite risky. Given the binary nature of the court hearing, the stock is very speculative in nature.

There are also a few other issues that concern me in relation to Amigo Holdings. One is the company’s balance sheet. At 31 December 2020, Amigo had net borrowings of around £180m. By contrast, shareholders’ equity was just £81m. This debt means the company is quite vulnerable.

Another concern is growth forecasts. For the year ending 31 March 2022, analysts expect Amigo’s revenue to fall about 45% to £102m. That’s concerning. 

Of course, there are some positives. Recently, the company appointed a new management team. Some directors even bought Amigo shares. 

All things considered though, I see Amigo as too risky for my portfolio. I think there are better penny stocks and growth stocks I could buy today.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Woman looking at a jar of pennies
Investing Articles

I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is this tech stock one of the best shares to buy now?

Jabran Khan is on the hunt for the best shares to buy now for his holdings and takes a closer…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

3 top FTSE 250 shares to buy right now

I think the FTSE 250 is offering some great dividend and growth shares at the moment. And there are plenty…

Read more »

Happy retired couple on a yacht
Investing Articles

This growth stock has seen its shares pull back! Should I buy now?

When a growth stock sees its share price drop, I look carefully to see if I could pick up a…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How to identify the best income shares like this one

Income shares vary in quality but this approach keeps me from making some of the worst howlers with dividend investing.

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

If I’d invested £1k in Tesla shares a year ago, here’s how much I’d have now

If Jon Smith had bought Tesla shares a year ago, he'd be in profit. But he has some concerns for…

Read more »

Twenty pound notes in back pocket of jeans
Investing Articles

Should I buy tobacco shares now for big dividends?

After a possible setback for electronic cigarettes, our writer explains why he would still buy tobacco shares for his income…

Read more »

a couple embrace in front of their new home
Investing Articles

3 FTSE shares I’m buying with the Help to Build scheme!

Last week, the government launched a new, Help to Build scheme. So, here are three FTSE shares that could benefit…

Read more »