I am always looking for new penny stocks to add to my portfolio. These smaller businesses can be great growth opportunities. However, they might not be suitable for all investors.
Smaller businesses tend to be riskier than their larger peers. As such, penny stocks can produce large profits for investors, but they can also incur significant losses.
Still, I am comfortable with the level of risk involved with buying these equities. Here are two penny stocks I believe have explosive growth potential.
Penny stocks for growth
Safestyle (LSE: SFE) is a leading retailer and manufacturer of PVCu replacement windows and doors. And like all construction-related companies, the group is currently experiencing a boom in demand.
According to the company’s interim results for the first half of 2021, revenues increased 73% year-on-year and by 13% compared to 2019. Gross profit also rose 41% compared to 2019, as the group’s operating profit margin increased from 26% to 32%.
I think the company is now primed for explosive growth because it has used the past 18 months to strengthen its balance sheet. At the end of the first half, it had £14.4m of net cash, more than double the level reported at the end of the first half of 2020.
With a strong balance sheet in place, the company’s growth initiatives are well-funded. It has opened two new depots over the past 12 months to improve operational coverage and reduce travelling time. It is also investing more in modernising its brand and salesforce.
Some challenges the group may face as we advance include housing market disruption. This could reduce demand for its services. Rising costs and a lack of staff may also reduce sales.
Despite these risks and challenges, I would buy Safestyle for my portfolio today.
In my opinion, one of the most exciting penny stocks on the market is AFC Energy (LSE: AFC). This company is a leading provider of alkaline fuel cells for the generation of clean energy. These fuel cells use hydrogen to generate electricity, which could make them a crucial part of the green energy revolution.
AFC is one of the few ways investors can tap into this booming market. The company is still losing money and in its early stages of development, but it has signed some significant agreements with global multinationals.
Its technology is being used as the primary power source in the charging of Extreme E’s race vehicles. These vehicles are being powered by green hydrogen created on-site by AFC’s fuelling system, which uses micro electrolysers, multiple mobile solar arrays and hydrogen storage technology.
The company’s involvement in this flagship racing event has ignited interest in the technology. I think it could be a turning point for AFC and hydrogen technology.
That said, this tech is experimental. There is no guarantee it will ever be commercial. That makes AFC a high-risk opportunity.
Nevertheless, even though the company is still loss-making, and it could be years before the business is sustainable, I would buy the stock for my portfolio as a speculative play.
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.