A cheap penny stock I’d buy to hold for 10 years!

I’m searching for the best penny stocks to buy for 2022. And this ultra-cheap, low-cost UK share has grabbed my attention. Come and take a look.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Buying penny stocks can often be a risky endeavour. Many such low-cost shares can experience periods of extreme price volatility. The majority of these shares also have weaker balance sheets than other larger stocks, putting them in extra danger when times are tough.

However, penny stocks can also offer better-than-average returns if investors get it right. Buying into fast-growing companies early on offers a lot more share price upside than investing once they’re established.

Here’s a cheap penny stock I’m considering buying today. I think it could deliver exceptional shareholder returns over the next 10 years.

A value retail star

The pressure is rising on household finances and consumers will have to box clever to survive. One way they are likely to do this is by shopping at value retailers like N Brown Group (LSE: BWNG). This penny stock sells affordable clothing in wider size ranges than most others in the industry.

Recent trading at N Brown suggests the firm is already capitalising on the shopping budget squeeze. Sales of its core strategic brands (Jacamo, JD Williams, Simply Be, Ambrose Wilson and Home Essentials) rose 5.5% in the 18 weeks to 1 January.

On a headline level N Brown’s product sales dropped 3.5% year-on-year. However, this reflected the managed decline of its other non-core brands. Demand for N Brown’s main brands (which account for four-fifths of product turnover) is quite solid.

A dirt-cheap penny stock

My main fear for N Brown relates to signs of a worsening supply chain crisis. A recent survey shows that shipping delays into Europe from China are getting larger, and suggests the problem will last long into 2022. This raises the prospect of higher costs and emptier warehouse shelves for retailers like N Brown.

Still, it’s my opinion that the retailer’s rock-bottom share price reflects the danger this poses to profits. At current prices of 38.3p per share this penny stock trades on a forward price-to-earnings (P/E) ratio of 5.4 times for this financial year (to February 2022).

2 women modelling clothes from penny stock N Brown

Growth hero?

City analysts reckon N Brown’s earnings will drop 10% in this outgoing financial year. But they also believe the outlook is sunnier over the medium-to-long term. It’s why they believe annual profits will leap 13% and 21% in fiscal 2023 and 2024 respectively.

N Brown isn’t just in great shape to ride the growing importance of value to the modern consumer. I personally like its focus on selling products in two potentially-lucrative demographic areas: plus-size and mature shoppers.

The government estimates that one in five people will be aged 65 and above by 2030. This bodes well for N Brown’s Ambrose Wilson division, for example, a brand which it says “truly values the mature customer”.

Meanwhile the market for larger-size clothing is growing rapidly due to changing perceptions over health and beauty. Analysts at Allied Market Research think this market will grow at an annualised rate of around 6% between 2021 and 2027.

So I think N Brown could have the tools to deliver terrific shareholder returns during the next decade.

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 assessed. Consider taking independent financial advice.

More on Investing Articles

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

£20,000 in savings? Here’s how I’d aim for £14,710 a year in passive income

With spare savings, this Fool would start generating passive income for a more comfortable retirement. Here he details how he'd…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

£9,000 in savings? Here’s how I’d try to turn that into £581 a month of passive income

Relatively small investments in high-yielding stocks can grow through the power of dividend compounding into significant passive income.

Read more »

Photo of a man going through financial problems
Investing Articles

These are the FTSE’s biggest dogs over the last year!

The FTSE 100 has fallen far behind other major market indices over the past 12 months. However, these three sliding…

Read more »

Investing Articles

My top 3 stock market lessons from the Nvidia volcano eruption

Can we learn anything from the explosive rise in Nvidia's share price? Here are three Foolish reflections from this stock…

Read more »

Abstract 3d arrows with rocket
Investing Articles

Is boohoo the best near-penny stock to buy today?

This Fool asks why the boohoo share price has collapsed and whether now might be a good time to invest…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A brilliantly reliable FTSE 100 share I plan to never sell!

This FTSE-quoted share has raised dividends for more than 30 years on the spin! Here's why I plan to hold…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

This 7.7% yielding FTSE 250 stock is up 24% in a year! Have I missed the boat?

When a stock surges, sometimes it can be too late to buy shares and capitalise. Is that the case with…

Read more »

Investing Articles

£13,200 invested in this defensive stock bags me £1K of passive income!

Building a passive income stream is possible and this Fool breaks down one investment in a single stock that could…

Read more »