High growth penny stocks can make good investments. They can allow me to buy a large number of shares at a low cost in promising companies. But I first need to ensure that these companies do indeed have potential. Sometimes the shares’ prices fall below 100p when the company in question is going through hard times. In this vein, I look at three penny stocks here.
Foxtons’ performance could improve
The first is the London-based real estate agent Foxtons (LSE: FOXT), which has so far shown good recovery. For the half year ending 30 June, the company swung back into profits after two successive years of losses. This implies to me, that not only did it get over the pandemic quickly, it also appears to be resolving the issues dragging it down earlier. Its revenues showed a good recovery as well.
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However, the company’s share price has not shown a meaningful pickup since. In fact, over the past year it has risen by less than 20%. The answer for this is not hard to find. It expects the second half of the year to be impacted by the rollback of the stamp duty holiday, though it believes that a sustained recovery is possible nevertheless. I like the penny stock, but based on its past financial history and some dip in demand for its services possible in the near future, it is on my watchlist for now.
Impressive share price rise
Building products distributor SIG has fared better, share price wise, in the past year. It has doubled since last September. Even six months ago, it was fairly evident that its share price can rise more. However, I will buy it only if it can continue to perform now. And I am not sure it will going by its share price drop over the last four months. Also, while its revenue numbers have improved for the half year ending 30 June, on a reported basis, it is still loss-making. It has been facing material shortages as well, that may tell on its second half performance. It does expect underlying profits to be ahead of previous expectations, but that is a wait and watch for now. Much like Foxtons, it is on my watchlist for now.
Commercial property may benefit
BMO Commercial Property Trust is the third on my list of penny stocks to consider buying. It just about makes the cut, with its share price just shy of 100p as I write. Its share price has risen by a very healthy 62% over the past year. As per its latest trading update for the period from 24 June to 1 September, the company collected 90% of its billed rent, which looks healthy considering the challenging environment, especially for commercial properties, since the pandemic started. I also like that since it focuses on commercial space, it will not feel the impact of the stamp duty holiday ending. In fact, property valuations could also rise as the economy picks up pace and office space is in greater demand as people head back to offices.
However, its financials were on shaky ground even before the pandemic started, which makes me cautious. Like the other two penny stocks, it is also on my investing watchlist.