I noticed that Luceco (LSE:LUCE) shares jumped yesterday after the company released interim results for its first half year period. Let’s take a closer look at the results as well as other aspects this potential investment. This will help me decide if I should buy this penny stock for my holdings or not.
Lighting products
As a quick reminder, Luceco is best known as a manufacturer and supplier of lighting products for both commercial and domestic use. It also creates and supplies wiring accessories as well as portable power solutions too.
It is worth remembering that a penny stock is one that trades for less than £1. So what’s happening with Luceco shares currently? Well, as I write, they’re trading for 88p. At this time last year, the stock was trading for 373p, which is a decline of 76% over a 12-month period.
I believe macroeconomic headwinds, as well the stock market correction caused by geopolitical events, have hampered the performance of Luceco shares.
Interim results and the bull case
Since Luceco released results for the six months ended 30 June 2022 yesterday, the shares have climbed 10%. So let’s dig deeper into the results. I see that revenue, profit, margin, and dividend per share all dropped compared to 2021. This is because 2021 was a record year for Luceco. It benefitted from last year’s DIY boom linked to the pandemic and stay-at-home guidance. It said that results posted for these six months were in line with expectations, due to normalised trading conditions.
I believe the shares rallied due to the comparison between 2022 interim results and the company’s pre-pandemic results. Revenue and margins were both up significantly. Furthermore, Luceco said it is undergoing a “strategic improvement process“. This will help it draw a line under the pandemic period, which hindered it massively. Based on these results, it said this strategy was working.
Next, I note that Luceco has entered the electric vehicle (EV) charging market by purchasing Sync EV in March. This will help diversify its business and boost performance. It is estimated that the EV changing market is to surge by close to £500m by 2025. Sync currently has 2% of market share. Luceco believes it can boost this figure and benefit due to its profile and infrastructure already in place.
Finally, I’m buoyed that Luceco pays a dividend that would boost my passive income stream, although I am conscious that dividends are never guaranteed.
Risks and my verdict
Despite Luceco shares rallying, macroeconomic headwinds could continue to cause issues. Rising costs could put pressure on profit margins. Supply chain constraints could affect its ability to deliver to its clients and hamper its overall sales figures. This could have a material impact on performance and returns.
In conclusion, I have decided that Luceco is not a penny stock I would add to my holdings. The pandemic affected the business negatively, and although it bounced back well due to heightened demand for DIY products, macroeconomic issues currently present yet another challenge for the business. I believe there are better stocks out there for me to buy for my portfolio.
