I find that investing in penny stocks can be a great way to grow my wealth at a swift pace. In the past, I’ve found several companies that have become much bigger enterprises. However, I’m always aware that penny stocks have the potential to dent my portfolio given their higher risk profiles.
Generally defined as businesses with a share price of less than £1, these firms also have fairly small market capitalisations. After trawling through the indices, I’ve found two companies that I think could add value to my portfolio and may take off. Let’s take a closer look.
Restaurant Group
Restaurant Group (LSE:RTN) owns and operates restaurants around the UK. Some of these are well-known names, like Wagamama and Frankie & Benny’s.
Unsurprisingly, the company was hit hard during the pandemic as dining outlets were forced to close. The share price plummeted from around 130p in February 2020 to a low of just 23p. It currently trades at 49p.
There are now strong signs that the firm is heading back to some degree of normality. For the 19 weeks to 15 May, sales at Wagamama were up 15% compared to the same period in pre-pandemic 2019.
What’s more, its pub sales increased by 10% on the same basis. I’m also encouraged by the fact that net debt has fallen by £6m since the end of 2021. If these trends continue, the share price could also increase.
The business has a cash balance of £220m, which would place it in a strong position in the event of any further lockdowns.
Inflation is a risk to this company, however. It has forecast that food and drink inflation could reach 9% or 10% and this could eat into future balance sheets.
Mitie Group
The second penny stock that I’m considering is Mitie Group (LSE:MTO), a firm that specialises in outsourcing and facilities management.
Currently trading at 64p, the business announced in June that it was reinstating its dividend. It will pay 1.8p per share and I find this potential income stream attractive. Furthermore, the company simultaneously initiated a £50m share buyback scheme, an indication that it’s financially healthy.
Recent contract wins from the likes of Netflix and Hammerson have complemented its current contracts at UK military bases overseas.
This has resulted in a swing from a 2021 fiscal year pre-tax loss of £14m, to a pre-tax profit of £52m for the 2022 fiscal year.
Revenue also increased by 58% over the same period, indicating that demand for facilities management is recovering. There could be even more growth in this sector as more offices reopen in the future.
The business is, however, under investigation by the Competition and Markets Authority (CMA) over a Home Office contract. If any foul play is found, this could dent the share price.
I think that these two penny stocks could see their share prices growing sharply in the coming months, given greater demand for restaurants and facilities management. With both sectors likely set for continued growth, I’ll soon be buying shares in both, while always being aware of the risks.
