This unknown penny stock could be the next big thing in the energy space

Jon Smith reveals a penny stock that’s now on his radar and that’s involved in improving energy efficiency — a hot area for the future.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

British Pennies on a Pound Note

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Penny stocks are characterised by having a low market cap (£100m or less) and a share price below £1. There are plenty that fit this bill on the London Stock Exchange. However, not all penny stocks are worth buying. As with any stock, an investor need to find tangible reasons why the company could outperform going forward. Here’s one I’ve spotted that could have a very bright future.

Being involved in a growing sector

The company I’m referring to is Aquila Energy Efficiency Trust (LSE:AEET). It has a current share price of 75p and a market cap of £74m.

The trust is focused on the buzz phrase of energy efficiency. As such, it invests in companies in both the private and public sectors that are involved in projects to drive such efficiency. An example that it gives is that of energy-saving light bulbs.

It has a large amount of overlap into renewable energy. This is a huge area of growth over the next decade, with an incredible push by both governments and private companies. I like the fact that the trust has diversified exposure around Europe and isn’t just UK-focused. The large markets aside from the UK are Spain, Germany and Italy.

Being clean helps profit too

Being ESG-friendly and operating in a growing area is great, but what about financial returns? The fact that the business is involved in the energy space actually helps to boost profitability.

For example, it has invested in a large residential project in Italy to improve energy efficiency within the apartments. By helping the thermal insulation and heating systems, the company receives tax credits back from the government worth 110% of the cost of the measures. These tax credits can then be sold to a third party, such as a bank.

The business is doing this, helping to make an overall 8-9% annual return on the project.

Taking a look at the share price returns

Despite these promising notes, the share price has fallen by 6% over the past year. The penny stock growth hasn’t yet taken shape.

I feel some of this has been due to the announcement last year that the dividends paid wouldn’t be fully covered by earnings. It therefore had to pay out some of its cash from reserves. Even though it said that the lack of earnings was simply due to not having deployed enough capital at the time, it isn’t a great look for the business.

This is a risk going forward, which might scare off some income investors. Yet this fund is for both income and capital growth. If anything, I feel the stock’s growth in coming years will be more from capital appreciation as more projects yield successful results.

Ultimately, I think this relatively unknown stock could take off in the future due to the sector it focuses on and the return it can earn on projects. It’s a growth stock that investors I think I think investors could consider as part of a diversified portfolio.

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.

Jon Smith 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.

More on Growth Shares

Investing Articles

2 British growth stocks I’d stash away in an ISA for the long run

Our writer highlights two excellent UK growth stocks that he'd feel very comfortable buying today to hold for the long…

Read more »

Growth Shares

Should I invest in Darktrace shares as they rocket towards £6?

Darktrace shares are up nearly 75% in 2024 as the cybersecurity sector rallied, but is it too late to invest?…

Read more »

Investing Articles

I’d consider buying these FTSE 100 growth stocks for 2024 and beyond

I've been looking for growth stocks with low PEG valuations, and I'm finding plenty. But they're not at all where…

Read more »

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

The Rolls-Royce share price frenzy is finally over. Is now the perfect time to buy?

Harvey Jones thinks the Rolls-Royce share price has risen too far, too fast. As investors start to calm down, a…

Read more »

Illustration of flames over a black background
Investing Articles

Here’s why I’m staying well clear of Rivian stock

Electric vehicles have excited investors for years now, but can be hit or miss. Here's why Gordon Best will be…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Here’s why I think AMD stock should be higher

The semiconductor sector has been on a tear lately, but here's why Gordon Best thinks AMD stock still has plenty…

Read more »

Bronze bull and bear figurines
Investing Articles

Up 25% in six months, where next for Scottish Mortgage shares?

This investor's relieved to see a positive turnaround in Scottish Mortgage shares in recent months. Could they now power even…

Read more »

Growth Shares

This out-of-favour UK growth stock could rise 89%, according to City analysts

This growth stock has been absolutely crushed over the last 12 months or so. But analysts at Deutsche Bank are…

Read more »