3 penny stocks I think could soon trade for over a pound

Some penny stocks may become pound stocks before too long. Paul Summers picks out three he views as cautious buys for his portfolio.

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There is, of course, no shortage of penny stocks for risk-tolerant investors to pick from. Even so, the recovery seen in the UK economy over the last years means quite a few companies have share prices that could shortly breach the £1 barrier. Here are three examples.

Finsbury Food

Bakery manufacturer Finsbury Food (LSE: FIF) is first up. The company produces a range of cakes, bread and snacks. Its share price has been in fine form over the last year, rising 54%. Based on its most recent trading update, I’m inclined to think this might continue. 

Back in July, FIF announced that revenues in the second half of its financial year had climbed 9.1%. That’s despite its foodservice division still being impacted by Covid restrictions. Trading overseas was also markedly better. Revenues here jumped 27.4%, due in part to lockdowns in Europe beginning earlier.

All told, Finsbury believes recent improvements in trading will allow it to eventually report revenues of £313.3m for the full year to 26 June. That’s higher than analysts were expecting. It also brings sales back to pretty much where they were before the pandemic took hold.  

Factor in this news with a valuation of just 10 times earnings and I suspect the shares could rise above £1 soon. That said, rising cases of the Delta variant could still prove problematic. So, while I would be comfortable buying today, I also don’t see this as a risk-free investment.

Sureserve

Shares in energy support services firm Sureserve (LSE: SUR) could also reach £1+ soon, I believe. Involved in the construction and maintenance of services to homes, schools and commercial buildings, its valuation has more than doubled in 12 months. 

I expect more to come, especially after the announcement today that two of its subsidiaries have extended their contract with affordable housing care provider The Guinness Partnership. This is for a minimum of five years and could actually last for a decade. Assuming the latter, SUR has estimated this agreement will bring £140m in sales revenue.  

Like Finsbury, shares in Sureserve look a good deal at 14 times forecast earnings. One thing worth noting, however, is the ‘free float’. The fact that only 68% of the company’s stock is trading on the market could make for a rollercoaster ride. It might only take a bit of buying or selling to make the share price move violently. 

Again, I see this as a cautious buy for my portfolio.

Record

A final company whose time as a penny stock may be up shortly is currency manager Record (LSE: REC). Its share price has soared 160% over the last year to almost 91p a pop.

I think REC can gain another 10% or so in 2021. In July, the company announced that its new financial year had “started well“. Assets under management equivalents rose by 5% in Q1, supported by more net inflows and a new fund launch. 

However, REC has a smaller free float than even Sureserve (just 30%). Again, this could be beneficial if the company does all the right things. However, the opposite is also possible. While not exactly overpriced, REC’s valuation is also higher than the other penny stocks mentioned at 18 times earnings.

Notwithstanding these points, I’d still buy. The company’s balance sheet looks solid and returns on capital have been consistently excellent. Both are qualities I look for. 

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.

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.

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