With many stocks falling due to economic pressures as well as the events in Ukraine, one penny stock I wanted to take a closer look at is Frenkel Topping (LSE:FEN). Should I buy or avoid the shares for my holdings?
Financial services
As a quick introduction, Frenkel is a specialist financial services business based in the UK. The £88m market-cap business is a small but agile firm specialising in the burgeoning personal injury and client negligence space. It also offers wealth management services too.
So what’s happening with the Frenkel share price currently? It is worth remembering that a penny stock is one that trades for less than £1. Frenkel shares are trading for 72p, as I write. At this time last year, the stock was trading for 58p, which is a 24% return over a 12-month period.
To buy or not to buy
So what are the pros and cons of me buying Frenkel shares?
FOR: I like the look of Frenkel’s performance track record. I am aware that past performance is not a guarantee of the future, however. Looking back, I can see it has grown revenue and profit for the past four fiscal years. Its best year to date has been 2021 as sales and pre-tax profits rose by 80% compared to 2020.
AGAINST: In recent years, the personal injury and client negligence market has risen in prominence and many firms offer these services. Despite its success to date, my concern with Frenkel is that it is a small fish in a potentially large lucrative pond. It could be out muscled and outmanoeuvred by larger firms with deeper pockets.
FOR: Frenkel has grown through acquisitions as well as organic growth. These acquisitions have helped the business boost performance and drive investor returns. In fact, I noted that it has a client retention rate of 99% that it has maintained for 13 consecutive years so things must be going well. As for returns, it pays a dividend that would boost my passive income stream. The current dividend yield is just over 1%. I am aware that dividends can be cancelled at any time, however.
AGAINST: One risk I am always wary of when it comes to acquisitions is overpaying. This is especially the case for smaller firms with a smaller balance sheet to rely on. Sometimes acquisitions can be costly if overpaying. On the other hand, not all are successful and disposing of a business that failed to boost offering and amalgamate can also affect performance and investment viability.
A penny stock I would buy
All things considered, I would happily add Frenkel Topping shares to my holdings. Its performance track record and impressive client retention levels coupled with its buy and grow acquisition business model attract me towards buying the stock. The fact it pays a dividend is a bonus.
If Frenkel can continue in the same vein, I wouldn’t be surprised to see performance, shares, and returns grow in the longer term.
