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2 penny stocks I’d buy before it’s too late

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British Pennies on a Pound Note
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Greetings card retailer Card Factory (LSE: CARD) was trading at a share price far higher than 100p before the pandemic happened. It has not gone back to those levels since. But, it has made much progress in the past year. Its share price is up some 55% since last September. 

Card Factory posts improved numbers

If it continues to recover at this rate, it will soon cease to be a penny stock. And it may just show good recovery, going by its latest update. For the six months ending 31 July, the company reported a 16.3% increase in revenue compared to the corresponding period of the previous year. Its operating cash flow also increased from last year and its net debt declined by 33%. 

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There are some disappointments to the result too. For instance, its like-for-like (LFL) sales dropped by 3.7%, reflecting the impact of the lockdowns on retailers during the period. Also, it continues to clock losses, indicating that the recovery is far from complete. 

Fall in the penny stock on reduced guidance

Because the pandemic dragged on for far longer than expected, the company has also reduced its long-term revenue guidance. Last July, it had expected to hit revenues of £635m by the end of financial year (FY) 25. It now expects to achieve revenues in excess of £600m by the end of FY26. It is probably because of the reduced guidance that the Card Factory share price has dropped by a huge 6.2% today.

What I’d do

However, I think there is still plenty to be positive about. The next six months’ will reflect the post-lockdown gains. In fact, they have already begun to show compared to the previous results. Moreover, the company’s focus on both online and in-store sales should bode well for it. E-commerce is the industry of the future, as the pandemic showed us, so it can hold the company in good stead.

Moreover, it is also expanding into complementary gifts and party markets, which can drive more customers to it as well as higher revenues. It is a buy for me today. 

UK Commercial Property sees improved asset values

Another penny stock I like is the UK Commercial Property Real Estate Investment Trust (LSE: UKCM). It has shown less volatility than Card Factory since early 2020, but it too is still below its pre-pandemic levels. To me, this indicates that there is still some room for it to rise. I say this particularly in the context of its latest update released earlier today. 

For the six months ending 30 June, its net asset value (NAV) rose by 6% compared to a decline of 5.1% during the same time period last year. It also has an occupancy rate of 96% and its rent collection for August is at 92%. 

Would I buy it?

As the economy improves, the prospects for commercial real estate will get better too. There are of course risks in terms of still persisting uncertainty. And the company also expects office rentals to decline over time. But, on the whole, I am positive on the stock. It too is a buy for me, while it is still a penny stock. 

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Card Factory. 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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