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Here’s why I’d buy this soaring penny stock right now!

A pile of British one penny coins on a white background.
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Many UK share investors are splashing the cash on companies that are involved in the manufacturing or running of hybrid and electric vehicles (EVs). I myself have bought fluid systems maker TI Fluid Systems to hopefully make money from the likely surge in EV sales over the next decade.

The low-carbon class isn’t the only car segment tipped for explosive growth in the coming years, however. As the number of high-net-worth individuals across the world booms, so does demand for sports cars. Analysts at Statista reckon 858,100 high-performance vehicles will roll off production line in 2025. That’s up from an anticipated 655,400 this year.

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This is why I think Surface Transforms (LSE: SCE) is one of the best automotive-focused UK stocks to buy right now. It’s a penny stock that manufactures cutting-edge carbon ceramic disc brakes for cars (and to a lesser extent for planes).

Contracts are stacking up!

Sales are rocketing at the business right now as the auto industry recovers from the troubles of pandemic-hit 2020. Revenues soared 34% year-on-year in the first half of this year, above Surface Transforms’ prior expectations. And the AIM company continues to rack up contracts with major original equipment manufacturers (OEMs) to keep the top line soaring.

Just today Surface Transforms announced that it’s been selected as a tier one supplier of carbon ceramic brake discs to an existing major customer. The contract is worth €5m over a four-year period beginning in 2024. And the penny stock has described the award as significant: it’s the first time the multi-year ‘carry over’ agreement has been implemented with said customer since the initial contract was inked in 2019.

Thursday’s news follows hot on the heels of a major contract signed with a new OEM just a fortnight ago too. That £20m, tier one contract is also due to commence in 2024.

A red Toyota Supra drives away from the camera

Why Id buy this penny stock right now

Today’s fresh contract news isn’t the only thing to a light a fire under Surface Transforms’ share price today. The stock was last trading 7% higher on Thursday at 70p per share.

The stock has also jumped after the firm announcing major changes to its manufacturing strategy. This includes accelerating the fit-out of its Knowsley factory by a full 18 months. The aim is to achieve sales capacity of £50m by 2023. This compares with £35m at present. It will also cut costs associated with the fit-out by around £10m and repurpose the facility as a single production line project rather than one made of independent manufacturing cells.

Now, its operations are highly cyclical and any economic downturns could significantly hit demand for its product. Its markets are also very competitive and that poses an extra danger to the top line. Still, at the moment I think there’s a lot to like about this stock. It’s why I’m thinking of adding it to my Stocks and Shares ISA right now.

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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
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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.

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