Penny stocks are known for having higher risk than large-cap equivalents. Smaller companies might not survive an economic downturn, or have the cash flow to see out a bad year. Yet penny stocks do have the potential to really explode higher in value if things take off. Here’s one innovative company that I believe could do just that.
The push towards alternate meat
Agronomics (LSE:ANIC) currently has a share price of 10.5p and a market cap just below £100m. The business invests in early stage firms that are focused on new ways of producing food and materials historically derived from animals.
It might sound a little odd, but stay with me. A big area of growth right now is cellular agriculture. This is where animal cells are taken and then cultivated to a stage whereby animal produce (e.g., meat) can be the finished product. The benefit is that an animal isn’t killed in the process.
Agronomics currently has investments in over 20 projects in cellular agriculture or other similar areas. The biggest weighting is 11.4%, with the smallest investment accounting for 0.2% of the net asset value (NAV).
The sector potential
In the last financial report for H2 2022, the business reported a profit of £18.5m, up from the £2.5m from the same period the year before. The net asset value rose in H2 last year by £19.4m, ending the year at £162.5m.
It’s clear from those figures that the value of the holdings is rising. So how does this 10p stock go to 100p? The clearest way for this to happen would be for the NAV to surpass £1.6bn. This 10 times move higher would logically pull the share price up by a similar amount, reflecting the value of the company.
I feel that this is a very possible scenario to happen over the space of the next two to three years. This is because there’s a continued push towards sustainable farming, veganism, and general animal welfare activism.
A report was recently published by Censuswide that said by 2040, 30% of worldwide meat consumption will be from cultivated meat. Using current market value, this would be worth £247bn. So if Agronomics invests wisely in companies that contribute to the £247bn, it’s not crazy to think that a £1.6bn value is off the table.
Hunting for gems
Another factor that helps is that in the portfolio, the firm only needs one or two companies to really take off.
One company in the portfolio that caught my eye is Bond Pet Foods. The plant-based food maker raised £14.5m last year and is growing fast. The pet food market was valued at £90bn in 2021, so there’s clear scope for the business to do well. In turn, this alone could help to push the share price of Agronomics up.
Risk and reward
As with any small cap that’s trying to make headway in a relatively new market, the risk of failure is high. The fact that it’s investing in other early stage companies makes it even more risky.
This clearly needs to be noted by investors. Yet I believe there’s clear potential for the share price to rocket higher in coming years, and so should be considered as a growth option in a portfolio.
