I recently purchased a small number of shares in penny stock Idox (LSE:IDOX). Here’s why.
Tech stock on the rise
As a quick reminder, Idox is a digital solutions business providing information management software. Its solutions aim to simplify complex tasks and operations through effective and efficient management in an organisation. With national and international customers, Idox has grown impressively in recent years.
So what’s the current state of play with the Idox share price? Well, as I write, the shares are trading for 62p. At this time last year, the shares were also trading for 62p, however, the shares have fallen 19% since last summer when they reached 77p.
A penny stock with risks
As part of my due diligence before investing, I take into account past performance and events. I do understand that past performance is not a guarantee of the future, however.
Unfortunately, Idox has experienced issues in the past. Looking back to 2018, I note there was an ill-fated acquisition. More tellingly, a restructuring within the organisation was required due to delayed contracts, and accounting issues due to revenue recognition. It’s important to me that businesses learn from past mistakes.
Finally, the software industry is a large and complex market. My issue with Idox is that it is a relatively small fish in a huge pond. It could be outmanoeuvred and out muscled by larger, better known competitors.
Why I purchased Idox shares
Firstly, I continued to review Idox’s performance. Most recently, Idox released a FY22 half-year report for the period ending 30 April 2022 in May. Revenue increased by 7% compared to the same period last year. EBITDA also increased by 8% and net debt decreased by close to 50%.
Looking back, it seems to me Idox has learnt from past mistakes. Since the problems in 2018 noted above, it has grown revenue and profit for a few years now. It is worth noting it is not uncommon for me to see a penny stock with a chequered past.
This recent performance and profitability has led to dividend payments that could boost my passive income stream, which is always a bonus. I am aware that dividends can be cancelled at any time, however.
Finally, Idox’s profile and presence is impressive to me for a growing penny stock. It has a substantial international presence with eight offices overseas. This has allowed it to sell further afield from the UK.
Furthermore, its UK business interests me due to its focus on selling its solutions to local governments. The demand for digital solutions at the local government level has increased exponentially in recent years and has been exacerbated by the pandemic. This market could be a lucrative one for Idox and could underpin performance growth and returns in the future.
Reviewing the risk-to-reward ratio, I was happy to buy a small number of Idox shares. My investment mantra has always been to buy and hold for the long term. I intend to do this with Idox and if things don’t work out, my loss will be minimal due to the fact it is a penny stock.
