These penny stocks have crashed! Should I buy now or keep watching?

Paul Summers looks at three penny stocks whose share prices have fallen heavily in recent months. Do big profits await if he buys today?

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The capitulation of markets in 2022 hasn’t been easy to bear. However, it does mean that a lot of UK shares are now potentially undervalued. Today, I’m looking at three penny stocks that may have fallen too far and could recover strongly in time. But is now the right time to buy?

Tritax Eurobox

Tritax Eurobox (LSE: EBOX) is the smaller sibling of FTSE 250-listed real estate investment trust Tritax Big Box. Like the latter, it specialises in developing and managing warehouses (or ‘sustainable logistics assets’). As the name says, all of these are located in Continental Europe.

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Demand for warehouse space from retailers went through the roof during the pandemic. This sent Eurobox’s share price up roughly 50% between March 2020 and August 2021. Since the beginning of 2022 however, the stock has crashed 20% in value.

This strikes me as a potential opportunity, especially as the current economic headwinds all look temporary. That said, a P/E of 23 certainly doesn’t strike me as a bargain valuation and there’s a risk Eurobox could fall some more.

Still, a 5.3% dividend yield isn’t to be sniffed at. It will also come in handy for tackling inflation. So I’m tempted to open a position in this penny stock.

EKF Diagnostics

Holders of AIM-listed EKF Diagnostics (LSE: EKF) have had an awful 2022, by any standard. The share price has been cut in two, leaving the company with a market capitalisation of just £160m.

Looking on the bright side, this valuation is still 60% above where it was when the first national lockdown in the UK was announced. This shows how well the company performed over 2021, thanks to Covid-19-related demand.

Having fallen so far, EKF stock now trades at 18 times forecast earnings. This looks fair considering that Wednesday’s AGM statement highlighted trading in Q1 had been “strong” with revenues “in line” with that achieved last year. That doesn’t sound like a company in crisis to me! The shares yield 3.6% dividend as well.

Analysts are expecting earnings growth of almost 25% in 2023. However, this is likely dependent on new non-Covid products being launched on time. A clear risk.

On balance, I’d be willing to begin building a position here too.

Victorian Plumbing

Bathroom products retailer Victorian Plumbing (LSE: VIC) is a company I’ve followed ever since it was listed in June last year. Concerned that it might be coming to market as the pandemic-influenced boom in DIY reached its peak however, I chose not to dive in. This proved to be a good call. The share price has tumbled 80% since then.

Are investors being too pessimistic? Possibly. Victorian has a good share of its market and benefits from a flexible online-only business model. Founder Mark Radcliffe still owns just under half of the company’s stock.

But, again, there can be no guarantees. With living costs hitting the consumer hard, plans to install a new bathroom suite are easily postponed. Throw in high marketing costs and a P/E of 18 doesn’t exactly feel cheap.

As such, I do wonder if there could be another drop to come if the next set of numbers don’t convince the market. I’ll wait to see evidence of better trading first.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT. 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.

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