One penny stock I think is an excellent opportunity is Topps Tiles (LSE:TPT). Here’s why I purchased a small amount of the shares for my holdings recently.
Tiling and flooring
Topps Tiles is one of the UK’s best known and largest tiling and flooring retailers with over 50 years of experience under its belt. It has a network of over 300 locations throughout the country.
Topps operates via two store models. Its primary method of operating is what it calls ‘large edge-of-town store formats.’ This means it operates in larger premises away from town centres. In addition to this, it also operates a Topps Tile Boutique arm with smaller locations closer to high streets. Topps also trades directly to customers in its retail business and has a trade arm too.
A penny stock is one that trades for less than £1. As I write, Topps shares are trading for 55p. At this time last year, the shares were trading for 74p, which is a 23% decline over a 12-month period. Recent stock market volatility has placed further pressure on many stocks but has created some attractive buying opportunities.
A penny stock with risks
Topps could currently capitalise on the rising demand for construction projects and home improvement projects. The issues it faces are that of rising costs, the supply chain crisis and the possibility of slower demand. All of these factors could affect performance as well any returns I would look to make as a potential shareholder.
The rise of e-commerce and decline of the traditional high street experience has not been limited to fashion only. I remember buying new tiles for my kitchen online as I found a better price for the exact same product. Topps could suffer at the hand of online only competitors. These competitors don’t need to worry about costs such as rent and property maintenance that physical stores bring with them.
Why I bought this penny stock
Topps Tiles shares look dirt-cheap to me at current levels. The shares sport a price-to-earnings ratio of just 10. For a business with a long, distinguished track record as well as one eye on growth and the future, this is an enticing price.
In addition to this, Topps sports a dividend yield of over 5% as I write! This is higher than the FTSE 100 average of 3%-4%. As a passive income seeker, this was a big factor in my decision to buy the shares. I must note that dividends can be cancelled, however.
The construction and home improvement sectors are growing exponentially and demand for services linked to these sectors are only set to rise. This will benefit Topps Tiles. Topps’ most recent update in March was a two-part update which included Q2 results and an acquisition announcement of the purchase of Pro Tiler. A penny stock that is acquiring businesses that enhance its offering stands out for me. Q2 results were good as well with retail sales in Q2 growing by 18.2% on a two-year like-for-like basis and 45.6% on a one-year like-for-like basis.
I recently purchased a small number of shares in Topps Tiles. I believe it is an excellent quality penny stock with lots of potential for organic and acquisition-led growth. The fact it pays a dividend with a yield better than the FTSE 100 average is a big bonus for me and I plan to hold on to the shares for the long term.
