Penny stocks have the ability to rise from humble beginnings to become industry leading giants. FTSE 100 incumbent JD Sports Fashion is a prime example of this. Of course, I’m not saying all small-caps can or will do that.
Two penny stocks investors should consider taking a closer look at are DP Poland (LSE: DPP) and Kodal Minerals (LSE: KOD). Here’s why!
DP Poland
DP Poland is the company that franchises the Domino’s Pizza brand in Poland and Croatia. One of the biggest allures of small-cap shares for me is when they’re attempting to capitalise on emerging markets. DP is certainly doing this as the demand for Domino’s is soaring in these countries.
DP shares have risen 37.5% over a 12-month period from 8p at this time last year to 11p as I write.
Its most recent trading update in November made for great reading, in my opinion. Like-for-like system sales in Poland and Croatia increased by 14.1% and 30% respectively in Q3. Food and labour costs remained in line with expectations. In addition to this, the firm’s balance sheet showed it had £2.4m in the bank which is always a plus point for penny stocks. A lack of a cash buffer for tougher times can contribute to smaller firms failing.
The biggest risk for DP Poland right now is inflation continuing to soar, which could mean its costs spiral out of control. This could take a bite out of profit margins which underpin growth aspirations, especially at this early stage.
Speaking of growth aspirations, the business continues to invest heavily in digital channels and is opening new stores regularly. It wants to reach 120 stores in the coming months. There are some potentially exciting times ahead, if you ask me.
Kodal Minerals
Kodal is a small-cap mining business with a potential mining asset that could help it soar through the discovery of a lithium-based commodity called spodumene. Lithium stocks could rise due to the plethora of applications that could be high in demand now and for years to come.
Kodal is in the process of developing the Bougouni mine in Mali. If successful, 220,000 tonnes of lithium-rich spodumene will be produced each year.
The obvious risk for all mining businesses – even more so smaller firms like Kodal – is that operational problems, costly excavations, and unforeseen problems can have a material impact on output, as well as performance and investment viability. Geopolitical instability in Africa could be an issue for Kodal. I’ll keep an eye on this.
However, Kodal, has recently agreed a $100m funding agreement with Chinese giant Hainan to get the project off the ground. This could help and reduce some of the risk, if you ask me.
As the popularity of electric vehicles (EVs) rises in line with targets to achieve net zero ambitions, Kodal’s mine could help the business soar to new heights, as lithium is a key component for EVs.
As with all commodities stocks, there are considerable risks. Plus, commodities stocks can be cyclical, which isn’t ideal for a smaller-cap stock like Kodal.
