A penny stock that looks dirt-cheap to me on paper is Agronomics (LSE: ANIC). Could the shares soar and should I buy some for my holdings? Let’s take a closer look.
Investing in food
Agronomics is a UK-based investment firm. It focuses on investment into the food industry, specifically more environmentally friendly alternatives of popular foodstuffs compared to traditionally produced meat and plant-based food.
Agronomics shares are currently trading for 9p. The shares have fallen 40% in a year, as they were trading for 15p at this time last year. It is not uncommon for a penny stock like this to experience such volatility.
Encouraging marketplace and signs of development
Agronomics invests in new businesses specifically in the nascent cellular agriculture industry. In simpler terms, this is the production of agriculture products directly from cells, rather than raising an animal for slaughter. There are two aspects to consider here. Firstly, the global market for meat and poultry is huge, worth over $1trn. Next, the rise in consciousness around animal cruelty has led to a major spike in consumers seeking vegan, plant-based, and cruelty-free alternatives. If Agronomics’s science is correct, there is a huge propensity for growth here, in my opinion.
Next, the sector in general seems to be moving in a positive direction. Earlier this year the US Department for Agriculture (USDA) gave two food tech firms permission to sell lab-grown poultry. One of these businesses, Upside Foods, is a private start-up. It’s currently in the portfolio of well-known investment management firm Scottish Mortgage Investment Trust.
Finally, a couple of the people involved in Agronomics have excellent experience of building up smaller firms in the consumer brands space and selling later for big money. Richard Reed, a non-executive chair, co-founded Innocent Drinks, a smoothie business eventually snapped up by Coca-Cola for £320m. Successful industry experience can sometimes separate potentially lucrative start-ups from others, in my opinion.
A penny stock with risks
One of the biggest issues for Agronomics is the fact that the cost of manufacturing these alternative foods is high right now. These higher costs could hamper profitability and growth initiatives, unless technology develops and costs can be cut down significantly.
Another risk for me here is that this type of foodstuffs may never become popular or mainstream. Will it taste exactly the same? Or could it go the same way as plant-based foods? Some of these have struggled to garner the attention of the masses and translate into sales and profit.
Overall, at 9p a share, with no debt on its books and a cash-rich balance sheet, I’ve decided to add some Agronomics shares to my holdings. I’ll be buying a small number of shares. If the business doesn’t take off, I’m not losing too much money. There is potentially a high reward here and I think the shares could soar, but there are lots of risks to consider too. At 9p a share, I’m not too worried and consider this penny stock a bit of a free hit for me and my holdings.
