Penny stocks can experience periods of intense share price volatility. Whats more, smaller market-cap stocks can also have much weaker balance sheets than larger businesses. This can make them much more vulnerable to economic and industry downturns.
Buying penny shares, however, could also give investors access to a growth hero of tomorrow. And this has the potential to turbocharge the returns made over the long term.
To Invinity and beyond
Investing in shares that play a role in the ‘green economy’ is one way investors can try to make big profits over the next decade.
I’ve sought to do this by buying renewable energy stock The Renewables Infrastructure Group. I have also invested in TI Fluid Systems, which makes lots of components for use in electric cars. I’m considering buying shares in penny stock Invinity Energy Systems (LSE: IES) too.
This UK share makes energy storage technology that ensures a constant stream of power supply. Energy production from renewable sources can fluctuate wildly according to when the wind blows and the sun shines. Invinity’s tech then can help prevent power outages from occurring.
Demand for the stock’s product, therefore, could rise strongly as the number of renewable energy farms across the world grows. But I like Invinity in particular because of its focus on vanadium flow batteries (VFBs).
Lithium-ion batteries are the most widely used and therefore represent a threat to other technologies like VFBs. However, I’m backing interest in Invinity’s batteries to snowball given their superior durability, safety and long-term cost effectiveness.
Latest trading news from the company this week was highly encouraging on this front. Revenues soared almost 700% year-on-year in 2021, to £3.2m. And its sales pipeline had soared 152% between 2 November and 25 May to stand at 714.2 MWh.
Invinity plans to supercharge production over the next couple of years to keep sales soaring too. It’s why broker VSA Capital thinks revenues will rise more than fourfold to £14.1m in 2022 and then to £20.6m next year.
Risk vs reward
It’s important to acknowledge that Invinity isn’t tipped to turn a profit over the next 18 months at least. This can create higher risk for an investor, as share placings or taking on debt can be used by loss-making companies to soothe liquidity problems.
On balance, though, this is something I’d be happy to accept with Invinity. In my opinion, the potential rewards investors could receive more than make up for this risk.
Research suggests that the global VFB market will be worth $592.4m by 2026. That’s more that double the $237.5m that the industry is estimated to be worth today. If everything goes to plan then Invinity Energy Systems could have a big role to play in this rapidly growing market.