This penny stock could be set to soar! Should I buy shares?

This Fool looks closely at a penny stock operating in an exciting growth market that could see its shares rise in the long term.

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One penny stock I decided to take a closer look at recently is Kropz (LSE:KRPZ). The shares look cheap and the outlook ahead could be very lucrative. Is now a good opportunity for me to buy and hold these shares for the long term? Let’s take a look.

Mining company

As a quick introduction, Kropz is an African-based mining business listed on the FTSE AIM. It has assets with the aim of locating, mining, processing, and selling rock phosphate. Rock phosphate is a key ingredient in fertilisers. These fertilisers are crucial in the food production process.

So what’s the current state of play with Kropz shares? It is worth remembering that a penny stock is classified as one trading for less than £1. As I write, the shares are trading for just 8p. At this time last year, the shares were trading for 5p, which is a 60% rise over a 12-month period.

Kropz shares did reach 12p in April but fell back after a trading update that pointed towards supply issues and an impact on production levels (more on that later).

To buy or not to buy?

So what are the pros and cons of buying the shares?

FOR: Kropz could benefit from the rising demand for food linked to the increasing population throughout the world. Soaring fertiliser demand could be great news for Kropz and businesses in the industry. If mines can produce quality rock phosphate, it can sell these across the world to help boost food production. This could lead to healthy returns in the long term.

AGAINST: Like all mining businesses, issues at mines and production problems could affect performance and returns. In fact, in April, Kropz stated that a production issue at its primary mine would push back its first sale of rock phosphate later into the year. I believe this had an impact on its share price.

FOR: At current levels, Kropz shares look dirt-cheap to me. This is crucial to me as a savvy investor — I need to think about my risk-to-reward appetite. The shares are currently on a price-to-earnings ratio of just six, which looks to me like decent value for money.

AGAINST: Kropz hasn’t actually yet produced or sold any rock phosphate. This is an obvious worry for me as a potential investor. In addition to this, there are many other firms in the same industry vying for market dominance. As a small penny stock, it doesn’t have a robust balance sheet to deal with setbacks or issues that competitors could deal with much more effectively.

A penny stock I’d buy

Reviewing the pros and cons, I have decided to buy Kropz shares for my holdings. For the price I would pay, the shares don’t look too risky to me.

I would happily add a small number of Kropz shares to my portfolio and hold them for the long term, which is part of my investment strategy anyway. The burgeoning market and the vital part rock phosphate plays in food production also helped me make my decision.

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.

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.

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