I believe the robust construction market makes Brickability Group (LSE: BRCK) a terrific ‘nearly’ penny stock to buy. This low-cost share — which changes hands at 101p — supplies bricks, blocks, roof tiles and other masonry products to the building industry.
Brickability’s share price has rocketed 122% over the past 12 months. It’s perhaps no surprise as successful vaccination rollouts in the UK have underpinned an impressive economic recovery. Cyclical shares like this are extremely sensitive to upturns and downturns in the economy.
Covid-19 restrictions caused revenues at the UK retail share to fall 3.2% in the financial year to March 2021. But signs that the pandemic is slowly receding bode well for business looking ahead (the Construction Products Association, for instance, thinks the British construction sector will grow 14% and 4.9% in 2022 and 2023 respectively).
Brickability is expanding rapidly to make the most of this opportunity. The former penny stock has made 12 acquisitions in the past three years, the latest of which, roofing contractor Leadcraft Limited, was announced last week. The business has issued shares and increased limits on its borrowing facilities to keep the M&A action going too. Brickability has said recently that “our acquisition pipeline continues to be strong and we are currently processing or evaluating several opportunities.”
Expanding for growth
It’s important to remember that an acquisition-led growth strategy can pose significant risks to a company though. I’m mindful that balance sheets can be loaded with huge amounts of cash for a business to pursue future growth. There’s also the possibility that a UK share can end up paying an unjust premium for an asset, that unexpected costs can pop up, and that profits can disappoint for a variety of reasons.
And of course there’s the possibility that the twin threats of Brexit and Covid-19 could derail Brickability’s recovery. They could damage the economic recovery and by extension the soaring British construction industry. And of course a severe upturn in coronavirus cases could cause building sites to be shut down like they were in 2020.
A dirt-cheap UK penny stock
That being said, I still think Brickability is an attractive stock to buy today. This is not only because of its ambitious growth strategy designed to exploit the recovering construction sector. It’s because at current prices the ‘almost’ penny stock commands a forward price-to-earnings growth (PEG) ratio of 0.5. A reading below 1 suggests that a UK share could be undervalued by the market.
City analysts think earnings at the Brickability will rise 32% year-on-year in financial 2022. They’re backing a 26% increase in annual earnings the following year too. Brickability is a UK share I think could deliver mighty returns long into the future, underpinned by soaring demand for new homes. The government plans to create 300,000 new residential properties a year by 2025 to meet this need. And at current prices I think it could be too good for me to miss.
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Royston Wild 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.