Most shares of companies with small market capitalisations sold off heavily in 2022 as investors fled riskier investments. The FTSE AIM All-Share index dropped around 30% last year. However, I think this has created some compelling buying opportunities. Here are two stocks I plan to buy that are trading for pennies.
Strutting higher
Shares of online womenswear brand Sosandar (LSE: SOS) are up 25% since the turn of the year. However, over a one-year period, the stock is down 8%. It’s currently trading at 25p per share.
Why the recent uptick in investor enthusiasm for the stock?
Well, firstly, the retailer released an upbeat Christmas trading update this month. In the third quarter to 31 December 2022, year-on-year revenue was up 30% to £11.6m. This was a new record and represents a fifth consecutive quarter of profitability.
Across the period, every single product category experienced growth. And its existing online partnerships with John Lewis, Marks & Spencer, The Very Group, Next, and JD Williams also delivered a record quarter for third-party sales.
Then this week, the Cheshire-based company announced it had secured a partnership with supermarket giant Sainsbury’s. Significantly, this deal will see Sosandar expand to in-store retail for the first time, giving it an omnichannel presence.
For the year ending 31 March 2023, management expects revenue of £42.8m, with pre-tax profit of £2.0m. With a market cap of £55m, this gives the stock a price-to-sales (P/S) ratio of 1.4. For a fast-growing young firm, that valuation looks appealing to me.
Plus, the company has £4.2m of cash and no real debt on the balance sheet.
A nice little niche
I like that Sosandar is not trying to be all things to all people. It has created a nice little niche for itself catering to style-conscious women who have graduated from fast fashion.
It sells fashionable clothes at affordable prices, but not as cheaply as boohoo or ASOS. This should enable the company to generate and sustain a healthy profit margin over time.
I also like that Sosandar’s co-CEOs, Alison Hall and Julie Lavington, are also the co-founders. They were the editor and publishing director respectively of fashion and celebrity magazine Look before launching Sosandar in 2016. So they have an intimate knowledge of their customer base.
Of course, there’s a risk of a major slowdown in consumer spending during a recession. Still, with the firm now entering a profitable stage of growth, I’m going to open a position in the stock.
Brave new meat
The second AIM stock I’m buying is venture capital firm Agronomics (LSE: ANIC). It runs a portfolio of over 20 start-ups involved in the fast-emerging field of cellular agriculture. This involves growing meat directly from animal cells rather than rearing and slaughtering animals.
Once the realm of science fiction, this is now becoming a reality. Agronomics thinks that cultivated meat could reach 35% of the global meat market by 2040. Meanwhile, McKinsey estimates this market could be worth $25bn by 2030.
At 13p and with a market cap of just £129m, this stock is often very volatile. However, it’s down 63% from its all-time high of 35p reached in May 2021. I already owns shares of Agronomics, and I’m preparing to buy more.
