I believe penny stock Speedy Hire (LSE:SDY) could benefit from the rise in demand for construction services here in the UK. Here is why I would add the shares to my holdings.
Construction equipment rental
Speedy Hire is a construction tools and equipment rental business. With over 200 depots across the UK and Ireland, it has over 300,000 itemised assets available for hire.
So what is the current state of play with the Speedy Hire share price? As a reminder, a penny stock is one that trades for less than £1. Speedy shares are trading for 49p, as I write. At this time last year, the shares were trading for 75p, which is a 34% drop over a 12-month period.
I believe Speedy shares have come under pressure in recent times due to macroeconomic headwinds and the stock market correction. This correction was caused by the geopolitical issues arising in Ukraine currently.
A penny stock with risks
The biggest threat towards Speedy’s performance and growth, and in turn investor returns, is that of soaring inflation and the rising cost of raw materials. Speedy will see its costs rise, which means increasing its prices. Some businesses have defensive capabilities whereby a price increase would not deter its customers and they would still experience consistent sales. Speedy doesn’t have this characteristic, in my opinion. It could lose customers to competitors that are able to offer better value for money.
Another issue is that Speedy is an asset-heavy business. It must continuously invest in new and updated equipment that comes out and a significant capital outlay is needed to do this. This outlay could affect any shareholder returns.
Why I like Speedy Hire shares
As mentioned earlier, Speedy could benefit from the construction industry recovering towards pre-pandemic levels. When the pandemic struck, the construction industry was severely affected. Current demand for housing and commercial property is soaring. In fact, demand for homes in the UK is currently outstripping supply.
As well as market conditions, Speedy’s business model is also beneficial to its own progress, in my opinion. There is a general consensus in the construction community that renting, and not buying tools, is more cost effective. Speedy specialises in renting out its equipment.
Speedy shares pay a dividend with a yield close to 4%. This is high for a penny stock, which is enticing. It also recently commenced a share buyback scheme that will reward investors too.
Let’s take a look at the fundamentals then. Prior to the pandemic, Speedy was able to grow performance in respect of revenue and gross profit. I do understand that past performance is not a guarantee of the future, however.
Coming up to date, Speedy’s full-year update for the year ending 31 March, released in April, made for positive reading. Revenue is set to increase by 5% compared to 2020 and investment of £70m has also helped secure a lucrative partnership with DIY giant B&Q. Speedy now has a presence in 38 B&Q stores, which will help boost its profile and performance.
Speedy Hire is a penny stock I would add to my holdings. I believe it could benefit from market conditions, despite macroeconomic challenges. The shares could be on the cusp of heading upwards in my opinion and I would buy them now before any price increase.
