If I’d invested £1,000 in this penny stock at the start of 2022, here’s what I’d have now

Penny stock Nanoco has soared 146% in value this year and would have more than doubled a £1,000 investment. Can it continue to outperform?

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The Nanoco (LSE: NANO) share price has soared 146% in 2022. In terms of price performance, that is hard to beat. If I had invested £1,000 in this penny stock at the start of the year, I would have £2,460 right now.

But, I didn’t invest in Nanoco. I only discovered it when I looked for the best-performing UK stocks this year. Now that I am aware of this penny stock and its recent track record, would I buy it for my portfolio?

A semiconductor nanotech penny stock

Nanoco produces quantum dots and nanoparticles. These find applications in OLED displays, security tagging, biometric facial recognition, and possibly diagnostic imaging and targeted drug delivery. A small-cap penny stock in the semiconductor nanotechnology business is bound to generate a fair bit of buzz, sometimes unwarranted. Looking at Nanoco’s share price over time, I can see two occasions when the price ran up, but then crashed. Temporary revenue increases accompanied these episodes.

The latest bull run in this penny stock’s price started in mid-March 2022 and is not baseless. On 17 March 2022, Nanoco announced that it had signed its fourth work package (repeat business is good) for a European customer for delivery of an enhanced and scaled-up version of its technology. As a result, the board felt comfortable saying that this year’s revenue number would exceed 2021’s £2.1m.

Reasons to rally

Other events have helped sustain the rally in this penny stock’s price. There was an agreement to develop a project with an Asian chemical firm in July 2022. Also, investors got updates about the company’s patent infringement lawsuit against Samsung in the US, and the trial might start in October 2022.

It’s worth pointing out that someone else is paying the legal fees and will get an unspecified multiple of any award made to Nanoco in the event of a win. This agreement will also extend to another lawsuit launched in August 2022 against the same party in Germany.

There were also a couple of grant awards from the UK’s innovation fund in summer 2022. Then on 12 September 2022, the board announced that 2023 revenues should be about 20% higher than this year (when finally reported), which should, in turn, exceed the last.

Should I invest in penny stock Nanoco today?

The rally in the Nanoco stock price has a basis. But, there have been several false dawns for this penny stock. If the board’s revenue expectations come to pass, they still won’t beat the £7.1m reported in 2019, and that was not enough to lift the stock price anywhere near its all-time high.

The lawsuit might prove successful. But, investors banking on a significant cash return might be disappointed. Any award gained will be reduced in keeping with that litigation financing agreement. I expect what is left to be reinvested in the business rather than distributed to shareholders.

Nanoco remains a highly speculative penny stock. As such, it does not chime well with my risk tolerance. With these types of stocks, I prefer to wait until something — like sustained revenue increases or perhaps an operating profit — happens to give me confidence in the stock’s prospects before I consider investing. For me, Nanoco is not there yet.

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 assessed. Consider taking independent financial advice.

James McCombie has no position in any of the shares mentioned. The Motley Fool UK 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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