Could this penny stock stage a storming recovery in 2024 and beyond?

This penny stock has seen its shares struggle recently. Could a better economic picture help boost its performance and shares?

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One penny stock I’ve been keeping an eye on is HSS Hire (LSE: HSS). The business had its issues recently, but I can’t help wondering if the future could be brighter.

Let’s take a closer look.

What’s happened

HSS is a leading rental and leasing business operating in the construction equipment sector. It operates out of physical depot locations up and down the country. It is open to DIY and trade customers, the latter being where most of its money is made.

So what’s been happening with HSS shares? As I write, they’re trading for just 7p. Over a 12-month period, they’re down 41% from 12p at this time last year.

Going back even further, they’re down 70% over a five-year period from 24p, to current levels.

A big reason for the recent drop has been economic volatility. Inflationary pressures, as well as rising interest rates, have hurt the property market, the house building market, as well as causing a cost-of-living crisis. This disastrous cocktail has resulted in mixed performance, as well as weaker investor sentiment.

Speaking of performance, the firm’s last update released last September, a half-year report for the six months ended 21 July, wasn’t all bad. HSS reported that revenue and operating profit increased, compared to the same period last year. However, margins and EBITDA were down. The good news was that there was an interim dividend. In fact, it was hiked compared to the last interim dividend.

What could happen?

The implications of a better economic picture are obvious, if you ask me, but not plain sailing. If volatility subsides, and the house building market can gain momentum once more, HSS could be primed to benefit. A big part of this for the business is the fact it has heavily invested in technology, its sales network, and boosted its partner program. Some of the results of this investment were clear to see in its last update.

Plus, the business has a good looking balance sheet at the moment too. This could help it stave off continued pressure at the moment.

If inflation comes down to expected levels in the coming months, and interest rates comes down, HSS could be in a better position for the future.

Would I buy shares?

There is definitely potential for recovery for HSS shares. Its profile, position, and the strength of its balance sheet are positive aspects. Plus, the housing imbalance in the UK offers it growth opportunities for years to come. Furthermore, a dividend yield of over 6% – albeit inflated due to a falling share price – is another plus point in my investment case.

However, I don’t think I’ll be buying any HSS shares for my holdings right now. Being at the mercy of economic headwinds to such a large extent is putting me off. There are better stocks out there that I could buy with my hard-earned money.

I will keep HSS shares on my radar for now, and might revisit my position once its next set of results come out.

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.

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