Should I buy these 2 penny stocks?

Penny stocks are risky investments but they can present growth opportunities to investors with a higher risk tolerance. Are KNB or SHI worthwhile for me?

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Kanabo Group (LSE:KNB) is a cannabis company listed on the London Stock Exchange. It launched via an initial public offering (IPO) in February to great excitement. The penny stock arrived with a listing price of 6.5p, but we saw the KNB share price rocketing above 40p within the first two days. Yet it plummeted soon afterwards. Now, the Kanabo share price appears to have steadied around 20p.

What does Kanabo do?

Kanabo is a stock specialising in medical cannabis while developing and manufacturing a CBD-based range of products.

Long term, it hopes to build a recurring revenue business model selling a varied assortment of unlicensed medical oils for use with its medical-grade vaporisers. This could be a potential money-spinner but I think it will take a long time to reach this point.

The company is based in Israel and its founder and CEO Avihu Tamir has extensive experience in working with medical cannabis patients. This inspired his vision to create a medical vaporiser for patients that would start to combat the negative effects of smoking cannabis or tobacco-cannabis mixtures.

Would I buy KNB shares?

The Kanabo share price is up slightly today from its Friday close, after the company announced it’s taken a £750k stake in Hellenic Dynamics. This is a Greek medical cannabis cultivation company, which is expected to publicly list in London soon via a reverse takeover. It raised the money for this stake via a share placing of 4.5m shares at 22p each. This may be a profitable move, but issuing new shares so soon after IPO may not please all investors.

It’s also begun implementing partnerships to produce and distribute its products, plus it’s awaiting certification on its VapePod device. These things take time so it could be another year before it’s reporting news that boosts the Kanabo share price.

I’m interested in investing in the growth of the cannabis market. But I think the KNB share price could have further to fall in the short-term, therefore I’ll keep it on my watch list for now.

Cashing in on the construction boom

Another London-listed penny stock I’ve been looking at is SIG (LSE:SHI). It supplies insulation, roofing, commercial interiors, and specialist construction products. The construction industry is booming today and demand for these products is high.

SIG is in the FTSE-All Share index. It has a £691m market cap, and earnings per share are negative. It also cancelled its dividend last year, although it hopes to reinstate it.

The company continues to see growth across Renovation Maintenance Improvement (RMI) in housing and construction throughout the UK and France. But the evolving pandemic backdrop continues to create uncertainty in the near term. As does the risk of inflation.

The SHI share price is currently down 53% from its pre-pandemic price, so there might still be upside for patient shareholders. Unfortunately, it’s been a very volatile stock over the past decade with several prolonged downward price trends. This discourages me from investing at what could be a high price point. From January to April 2021, group sales fell 4% compared to 2019. I think this is discouraging. Overall, I’m not drawn to invest in SHI shares today, there are other stocks I’d prefer to buy.

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 assessed. Consider taking independent financial advice.

Kirsteen has no position in any of the 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.

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