A penny stock that caught my eye recently is Bakkavor Group (LSE: BAKK). Let’s see if now is a good time to buy some shares for my holdings.
Fresh food
Bakkavor is a leading provider of fresh prepared food (FPF). With over 18,500 employees across 45 sites, the business produces a range of fresh food such as ready meals, pizzas, desserts, salads, and more. Some of its customers include the biggest grocery retailers in the UK. It also has an international presence in the US and China.
It is worth remembering that a penny stock is one that trades for less than £1. Bakkavor shares are currently trading for 97p. At this time last year, they were trading for 84p, which is a 15% increase over a 12-month period.
To buy or not to buy?
Starting with the bull case, I believe Bakkavor has defensive traits. This is because it produces food, which is an essential requirement for everybody, no matter the economic outlook. After all, everybody has to eat. In addition to this, its international presence across lucrative markets such as the US and China give it exposure to boost earnings and returns.
Next, Bakkavor has a good track record of performance. I can see that it has increased revenue and performance for the past three years. More recently, a Q1 trading update released at the end of May made for good reading. Group revenue increased by close to 8% compared to the same period last year. Furthermore, the company said it continued to increase its market share in the UK, its primary market. Finally, full-year guidance has been upgraded to the upper end of its expectations. However, I do understand that past performance is not a guarantee of the future and forecasts don’t always come to fruition.
Finally, Bakkavor shares would boost my passive income through dividends. A dividend yield of just over 7% is above-average for a penny stock. However, I do understand that dividends are never guaranteed.
From a bearish perspective, Bakkavor has confirmed that inflationary pressures are impacting the firm’s profitability. These include the rising cost of raw materials, packaging, labour costs, and distribution. When profit margins are under pressure, returns and sentiment can be impacted.
Another issue Bakkavor mentioned is a post-pandemic hangover in China, a market it is looking to expand and grow its presence in. The country has faced several issues and Bakkavor’s volumes have slowed. However, its recent update did mention that volumes there were back on an upward trajectory.
A penny stock I would buy
After reviewing the pros and cons, I like the look of Bakkavor shares. In fact, I would be willing to buy some for my holdings when I next have some cash to invest.
Bakkavor’s defensive abilities, international presence and trading performance were big factors in my decision making. In addition to this, a penny stock with such an enticing dividend yield is hard to ignore for me as I look to ensure my holdings boost my passive income.
