As long as I can handle their rollercoaster-like share price performance, penny stocks have the potential to dramatically improve my returns.
With this in mind, here are three high-risk, high-reward plays trading under a pound that have grabbed my attention.
Cheap penny stock
One penny stock that could turn out to be a bargain in time is Safestyle UK (LSE: SFE). The firm manufactures and sells PVCu replacement windows and doors to the UK homeowner market. That’s about as dull a company as you’re going to find on the market. Notwithstanding this, I’m encouraged by recent trading.
Last month, Safestyle revealed it had managed to grow revenue, margins and its order book over the first half of 2021. In fact, it now expects full-year performance to be “ahead of current expectations“. That’s impressive, considering just how damaging the pandemic was to business last year.
Naturally, there are still risks. We could see a normalising of demand as people spend their lockdown savings on other things. The rising cost of materials used by Safestyle can’t be discounted either.
With a net cash position and shares trading at less than 13 times earnings however, I think the potential reward might be worth it.
Buy the dip?
Another penny stock that grabs my attention is Greatland Gold (LSE: GGP). I first became bullish on this miner when its shares changed hands for less than 2p a pop. From there, the price exploded to a high of 38.5p last December, thanks to positive drill results and the involvement of industry giant Newcrest.
Unfortunately, GGP has now retreated in value. In fact, its share price has fallen by over 50% in 2021, so far. This can be a common trend with penny stocks, especially miners.
After all, finding precious metals is just half of the challenge. Digging it up can be just as problematic, as well as costly. I’d need to keep this in mind if I were to invest in Greatland now.
However, I do think this remains one of the best junior copper/gold plays around. Last month, the company announced that recent drilling results “continue to support the potential for resource expansion” at its joint-owned, world-class Havieron project.
This could add even more value to the deposit GGP has located. The fact that it also operates in Western Australia rather than a more politically volatile part of the world is another attraction.
Back in April, the online booking platform reported that uptake volumes had been “weak” throughout the first quarter of its financial year. Nevertheless, domestic trade was described as “recovering“, with the North and Central American markets looking the most sprightly.
Since then, of course, vaccination programmes have been in full swing. This may allow the company to provide some guidance on full-year earnings when it reports interim numbers next Wednesday (11 August).
If the outlook has improved (and I think it has), this penny stock could be trading over a pound soon. Then again, the drop in the share price over the last few years, not to mention the strong competition it faces, suggests I’d still need a strong stomach to invest.
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Paul Summers 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.