Here is 1 penny stock primed to benefit from the construction boom!

Jabran Khan delves deeper into a penny stock that he believes could benefit from the construction boom, and explains why he likes the shares.

| More on:
British Pennies on a Pound Note

Image source: Getty Images

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.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

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.

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

Jabran Khan 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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

£10,000 invested in BT shares 10 years ago is now worth this much

It's painful to remember that BT shares reached over £10 at the peak of the dot com bubble in 1999.…

Read more »

Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Investing Articles

Is now the time to buy bank shares?

Our writer considers whether bank shares could be a bargain buy for his portfolio right now -- or a potential…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

After steep falls, are Royal Mail shares a steal?

Royal Mail shares have more than halved since peaking a year ago. After months of steep falls, this popular stock…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

Dirt-cheap, 1 of my best stocks to buy also pays an above-average dividend!

This Fool has decided to buy the shares on his best stocks to buy now list with the shares looking…

Read more »

Light bulb with growing tree.
Investing Articles

The AFC share price just tanked! Is now the time to buy?

The AFC share price fell nearly 10% on Wednesday after the H1 revenue announcement. So, should I add this stock…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

These shares have been growing dividends for decades. I’d buy!

Our writer considers the merits for his portfolio of buying two shares with a track record of growing dividends.

Read more »

Close-up of British bank notes
Investing Articles

Is the M&G dividend yield heading to 10%?

As the M&G dividend yield heads towards double digits, out writer explains why he is considering buying more of the…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

3 top dividend shares to buy now

With weakness in the markets, I reckon it's a good time to search for top dividend shares to buy now.

Read more »