This penny stock is up almost 20% in 2 days! Here’s why it could rise more

The penny stock has been struggling for the past few months, but this Fool believes that fortune may be about to smile on it. 

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AIM stock Angling Direct (LSE: ANG) was up around 11% day before yesterday following its robust results. It closed up by another 8.5% today. This means, that in two days, it is up by almost 20%! 

But its performance over the past year was not spectacular before this week. It is up by nearly 25% now, but until its latest results were out, all the gains made over the year had been wiped out. So, its share price was not significantly above last year’s levels. 

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I think this is an important point to consider when figuring out whether to buy the stock or not. 

What happened to the Angling Direct share price?

To answer the above question, I went back to its last results released in May. I had written about it then, and my sense was that its share price could continue to rise in the present environment. At that time, the environment was one of overall bullishness in the stock markets. The FTSE 100 index had been rising pretty much steadily for the last few months since vaccines were announced in early November. 

Since then, however, stock markets have been more moody. Longer-than-expected pandemic-related disturbances, rising prices and a slow recovery have weighed them down. I reckon this shows up in Angling Direct’s share prices as well, along with some expected moderation in growth from the lockdown boom. The penny stock had a value of 86p when its full-year results were released in May, and has fallen by more than 17% since. It did not help that its price-to-earnings (P/E) ratio at 26 times at the time, looks high in hindsight. 

What’s next for the penny stock?

However, I think fortunes may be about to look up for the now-beaten-down stock. Based on today’s results, I estimate its P/E ratio calculated from the last 12 months’ earnings is around 13 times. This is half the P/E it had until a few months ago.

This alone makes it an attractive stock to me. Especially considering that strong earnings growth it has recently seen. Its earnings per share, for instance, are up by 83% from last year. So, at the current share price, its P/E could fall even more if it keeps up with this performance over the rest of the year. This could make it even more attractive. 

What I’d do

I think we can continue to expect a rise in its share price over time from this point on, barring any unforeseen developments with the company. I do not, however, think that it will rise fast. The broader environment has weakened considerably. Numbers on the UK’s recovery released yesterday show continued sluggish growth. And while the company has not so far been affected by inflation, it does say that it is not immune to cost pressures. 

But for my long-term investments, I still think this is a stock to buy. 

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Manika Premsingh 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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