I feel there are some quality penny shares to be snapped up right now due to market volatility. Let me explain my approach and break down one pick I’m adding to my holdings.
What I look for in penny shares
It is always worth remembering that penny shares can be prone to more volatility compared to larger, more established stocks.
Firstly, small-cap stocks have different regulatory rules compared to their larger counterparts. Reporting standards are less stringent. When I’m reviewing any investment for my holdings I’m looking for as much information as possible. If there are gaps or any obscurity, I consider this a red flag.
Next, I always look at historic performance. I absolutely understand that past performance is not a guarantee of the future. When it comes to penny shares especially, I want to understand how a business has performed against targets and its level of consistency. This helps me build a picture of a firm’s leadership and success levels to date.
These are two of the main things I look at, as well as other factors too.
ITV
After reviewing lots of penny shares recently, I’ve decided to add ITV (LSE: ITV) shares to my holdings. You may be wondering how one of the largest broadcasting and production companies in the UK is trading as a small cap? Well, the business has struggled in recent years. Despite this, I think the shares are too good to miss right now and a recovery could be on the cards.
Starting with ITV’s valuation, the shares look dirt-cheap on a price-to-earnings ratio of just seven.
Next, ITV shares would boost my passive income stream with a dividend yield of 7.2%. This is one of the highest yields I found among the penny shares I reviewed. I do understand that dividends are never guaranteed.
In my opinion, ITV is showing great signs of life and recovery. I’m hoping this could translate into future earnings and investor returns, as well as share price growth.
To start with, ITV’s streaming platform has seen its viewership numbers increase steadily since it introduced its revamped offering, ITVX. Furthermore, I can see ITV’s advertising revenue has helped boost the business, this during a time when the market is struggling. Next, the production arm of the business has hit the jackpot in recent times with a few money-spinning TV favourites. These include I’m A Celebrity and Love Island. Finally, ITV has managed to shore up its balance sheet and has lots of cash in reserve. This is always useful to navigate tough times as well underpin growth initiatives.
From a bearish perspective, ITV could suffer due to the declining nature of terrestrial television. Furthermore, despite its recent success on its own streaming platform, it still lags some way behind more established players in the market such as Netflix and Amazon. These aspects could hinder ITV’s progress.
Overall, I believe ITV is one of a number of quality penny shares that are too good to miss out on. For me, ITV meets the criteria I’m looking at when deciding to buy small-cap shares for my holdings.
