1 surging penny stock I’d buy today at 32p

This AIM-listed penny stock has climbed 51% in 2023 so far after delivering an increase in profits and a reduction in net debt.

| 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

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 volatile-but-potentially-lucrative investments. And I’ve recently been looking for smaller companies to invest in to complement the larger firms that form the majority of my portfolio.

One business that caught my eye is Iofina (LSE:IOF), which specialises in the exploration and isolation of iodine as well as the production of speciality chemicals. At present, the company’s shares trade for 32p each and it has a market capitalisation just shy of £61m.

Here’s my take on the outlook for this penny stock.

A mineral in demand

Iodine is essential for human health. It plays a vital role in proper thyroid functioning and promoting hormone production for healthy metabolism. It’s estimated that up to a third of people worldwide are at risk of an iodine deficiency.

The price of iodine has risen steadily since early 2020, driven by demand for human health applications and X-ray contrast imaging agents. Analysts expect the market will continue to grow over the coming years.

This is good news for Iofina. The company has developed a method of extracting iodine from leftover brine in onshore oil and gas production. Its process is more environmentally friendly and cheaper than leaching nitrate ores mined from the Atacama Desert, which is the source of around 66% of the world’s iodine supply.

Strong financials

The company’s results for FY22 were encouraging. Revenue increased 8% to $42.2m and its average price per kilogram for sales of crystallised iodine rose 98% to an average of $71.20. In fact, the group saw improvement across a range of key metrics including EBITDA, profits, and cash flow.

In addition, the business also trimmed its net debt from $3m to $0.9m. This is a positive sign, considering Iofina’s balance sheet hasn’t always been this healthy. After rapid expansion in 2013, the share price had collapsed 98% by early 2016, weighed down by large debts and loss-making operations.

Regarding future expansion, the company’s focus is on expanding iodine production and its speciality chemicals business. It aims to develop new chemical compounds, reduce its reliance on its current oil and gas partners, and explore new geographic areas. It currently operates five extraction facilities in the Anadarko Basin in western Oklahoma.

Risks

Of course, Iofina is very exposed to iodine prices. Any turbulence in the market poses a clear risk if the company’s margins are squeezed as a result.

Moreover, although the firm has good relationships with energy companies operating in Oklahoma’s oil fields, there’s a limited number of fields that can be developed in the area. That said, the company isn’t near full capacity currently. Plus, it plans to diversify its revenue sources in the future.

Nonetheless, as things stand, this could potentially curtail long-term growth in the share price.

Why I’d buy this stock

Overall, it looks attractively valued to me and recent financial results have been very positive. If global demand for iodine continues to grow as the company expects, there’s considerable potential for the business to expand.

While I wouldn’t take too large a stake in any penny stock, given their volatile nature, this company could potentially help to boost my portfolio’s returns. If I had spare cash, I’d buy today.

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.

Charlie Carman 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 Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

2 recession-resistant UK stocks I’d buy and hold for a decade!

Our writer details two UK stocks she believes could still continue to perform well in a recession and not feel…

Read more »

Back view of blue NIO EP9 electric vehicle
Investing Articles

Down 31% this year! Is now the moment to buy NIO stock?

NIO stock has moved sharply downwards in the past couple of months. Christopher Ruane likes the business potential -- but…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 dividend stocks I reckon could grow payouts for years to come!

This Fool is looking for dividend stocks and explains why these two picks could be primed to grow their payouts…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Should I buy, sell, or hold my Rolls-Royce shares at £3.50?

This Fool considers what he should do with his Rolls-Royce shares following the FTSE 100 company's excellent full-year results last…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

With a spare £280, here’s how I’d start buying shares this March

Our writer reflects on what he has learnt on the stock market to explain how he would start buying shares…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Are these expensive FTSE 100 stocks actually brilliant bargains?

Paul Summers takes a closer look at two FTSE 100 stocks that could recover strongly in time, despite already carrying…

Read more »

Investing Articles

What might the recent Aviva share price performance tell me as an investor?

Christopher Ruane looks at how the Aviva share price has performed over the past 12 months and considers whether he…

Read more »

Investing Articles

Down by a quarter, is the BT share price a steal?

The BT share price has more than halved in the past five years. What is holding it down -- and…

Read more »