3 penny stocks with explosive growth potential

Rupert Hargreaves highlights two penny stocks (and one that almost qualifies for that description) that he’d buy for their explosive growth and income potential.

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Recently, I have been looking for penny stocks to buy for my portfolio that have explosive growth potential. Buying small-cap stocks can be a great way to generate large profits. Unfortunately, it can also lead to significant losses. So, the strategy might not be suitable for all investors. 

Still, it is an approach I am comfortable using. With that in mind, here are three I would buy today. 

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Penny stocks to buy for growth 

The first on my list is Capital Limited. This £150m market capitalisation corporation invests in resource businesses around the world. Typically I would avoid such companies, but Capital has a strong track record. It recently reported an increase in the value of its portfolio of $23m, taking the value of its investments to $54m

Past performance should never be used to guide future potential. Still, with commodity prices ripping higher worldwide, I think the group may continue to benefit from the favourable backdrop. This could lead to further increases in the value of its portfolio. 

That said, commodity prices can fall as fast as they rise. So Capital could see a sudden reversal in its fortunes in the future. 

Wealth management demand

Another company I would buy for my portfolio of penny stocks is the financial services group Finncap (LSE: FCAP)

With a market capitalisation of £62m at the time of writing, this is a tiny business. That may deter some investors from buying the stock. 

Still, I am excited by its potential. It is currently benefiting from rising demand for its services. In June it reported that revenues for the full-year would be between £40m to £50m.

A few weeks ago, management upgraded this forecast, saying revenues will be “slightly above the top end of these full-year revenue expectations.” 

Finncap’s cash balance is also expanding. It stood at £17.2m at the end of the first quarter and has continued to grow. This is why I think this company would fit nicely into my portfolio of penny stocks with explosive growth potential. 

Energy storage 

The final share I would buy is Gore Street Energy Storage (LSE: GSF). As the UK becomes more reliant on renewable energy, companies like Gore Street may see increasing demand for their services as regulators look to balance grid supply and demand. 

The fund is one of the few ways investors can buy into this trend. That is why I would acquire the stock even though it is technically not a penny stock. It is trading at 109p per share at present. As well as this growth potential, the shares also offer a dividend yield of nearly 6%. 

The company’s yield and growth potential are both attractive, in my opinion, although I realise this might not be suitable for all investors. The energy storage market is still in its infancy, and there could be further challenges ahead for the group to overcome. It might not be able to survive in a utility market dominated by more prominent suppliers. 

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Rupert Hargreaves 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.

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 considered, so you should consider taking independent financial advice.

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