Could this falling penny stock soar once more due to the 5G revolution?

Sumayya Mansoor takes a closer look at this falling penny stock and explores whether things could turn around after recent struggles.

| 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.

Concept of two young professional men looking at a screen in a technological data centre

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

One penny stock that caught my eye recently is Calnex Solutions (LSE: CLX).

Macroeconomic issues and profit warnings

Calnex is a Scottish technology business. Its core offering is testing and measurement solutions to the telecoms sector. In simple terms, it helps telecoms businesses ensure the quality of their services.

Calnex shares haven’t exactly set the world alight in recent months due to macroeconomic volatility. To compound matters, the business provided a profit warning last month whereby it said profit would be 20%-30% lower than anticipated. The company said weakened demand for its services against the back drop of economic turbulence had hurt it.

I understand forecasts don’t always come to fruition, but missing by that much is never a good look, if you ask me.

Over a 12-month period, Calnex shares are down 61% from 154p at this time last year, to 59p, as I write. Since last month’s announcement, they’ve dropped 50% from 118p to current levels.

A turnaround on the cards?

It’s worth noting that Calnex had a great record of revenue and profit growth for the past few years. I reckon this is a prime example of not reading too much into past performance to gauge what could happen in the future.

Despite the recent doom and gloom, I think Calnex shares could potentially mount a turnaround. To start with, it can count some of the biggest telecom firms as customers. These include BT, AT&T, and Vodafone. Partnerships with large players in the market could help it mount a fightback.

The rollout of the 5G network could provide a vital boost to Calnex shares in the years ahead. Like all new critical infrastructure and tech, thorough testing is required to ensure service levels are up to scratch. The 5G rollout is set to continue for a number of years yet, so there is potential for Calnex to capitalise.

Calnex also said in its beleaguered update that it is hoping to return to revenue and profit growth for 2025. Plus, there’s an added motivation for the business to bounce back as its founder, Tommy Cook – still in charge of the business – owns more than 17m shares. I’m always intrigued when insiders running a business own shares. They’ve got their own hard-earned cash at risk so if that’s not motivation, I’m not sure what is.

High-risk but high-reward stock

There’s lots to like about Calnex despite falling into penny stock category. An established customer base, market trends such as the 5G rollout that could boost the business, as well as insiders owning shares are all positives. Furthermore, some well-known institutional investors are on board, such as JP Morgan. This could be a sign of faith in the business.

I’d be willing to buy some Calnex shares for my holdings when I next have some spare cash to invest. At just under 60p a share, I wouldn’t be buying loads, but enough to help diversify my portfolio. However, I understand that the short-term outlook is bleak. I’m a long-term investor so I’m prepared for a bit of pain along the way for long-term gains.

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.

Sumayya Mansoor 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

Investing Articles

Down 23%! Should I buy more CrowdStrike shares for my Stocks and Shares ISA?

Sometimes bad news can be good news for long-term investors. But is that the case for CrowdStrike in relation to…

Read more »

Investing Articles

2 UK shares near 52-week lows I’m considering snapping up

These UK shares are loitering near, or at, 52-week lows. Are these prime opportunities for our writer to boost her…

Read more »

Investing Articles

Unilever: a passive income stock with potential for decades of dividend growth

Stephen Wright thinks Unilever can keep reducing its share count for years to come. And this should help make it…

Read more »

Middle-aged black male working at home desk
Investing Articles

Worried about retirement? I’d buy high-yield dividend shares to build wealth

The number of pensioners enduring poverty in the UK looks set to rise. Investing in dividend shares could help Britons…

Read more »

Investing For Beginners

2 boring but beautiful FTSE 100 stocks to add to my ISA

Jon Smith runs over a couple of FTSE 100 stocks that he really likes the look of, even though they…

Read more »

Investing Articles

Here’s how I could supercharge my wealth by snapping up the best dividend stocks!

This Fool explains how dividend stocks play a crucial part of her aspirations to build wealth, and details one pick…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Revenue up 10% and accelerated growth potential for this overlooked FTSE 250 company

Today's first-quarter update from this good-value FTSE 250 company keeps me keen on the stock as recovery and growth continues.

Read more »

Investing Articles

Here’s why I’m so bullish about the BT share price now

The BT share price shot up after FY results, and a couple of months on it's still up there. Might…

Read more »