After halving in value, I think this penny stock is ready for a comeback

Jon Smith explains why a penny stock has fallen in value over the past year, but notes the surge in revenue recently that could spark something.

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The volatility in penny stocks can’t be underestimated. With small-cap shares, wild share price swings are par for the course. Yet due to this, there can be opportunities for investors to buy stocks on the cheap after a larger-than-logical fall in the share price. Here’s one case that I think could be a value buy right now.

Down in the dumps

I’m on about Invinity Energy Systems (LSE:IES). The stock is down 50% over the past year, meaning that it has a market cap of £94m and a share price of 21p,

Let’s get the bad news out of the way first. One reason why the stock is down so heavily is that the business continues to be loss-making. In the last full-year results, the firm lost £18.54m, with revenue of just £2.94m.

Even though the business is getting money through the door from the sales of energy storage systems, it has high costs of operating. Since the business has been losing money for the past five years, there’s clearly some concern from investors about whether it’ll ever make money.

This becomes a slippery slope for the share price, as more investors throw in the towel and sell, which causes the stock to fall even further.

Reasons for optimism

What really caught my eye was the latest half-year results that came out late last year. They detailed how revenue surged to £14.8m, a 10 times increase from the same period of the previous year.

This related to the successful delivery of products to three major clients, including one in Canada, one in Australia and one in the US.

The update was also very positive regarding the outlook, with the company in the process of launching a new system known as Mistral. The report explained how it has already secured large orders for this, which includes funding from the US Department of Energy.

In the short term, operating costs will remain high as it seeks to have the staffing levels to process the orders. Yet ultimately the jump in revenue shows that demand is there and that the future could be bright.

Risk, but reward

I get why the stock hasn’t rallied yet. Investors want to see proof that the business can turn a profit, not just get revenue through the door. Yet from my perspective, the jump in revenue is the logical step to be followed by profitability.

If the business can maintain revenue growth over the next year, I’d expect the firm to turn a profit in 2024. Future speculation is a risk, and this is a volatile penny stock that we’re talking about. But I’m seriously considering adding a small amount of it to my portfolio for a potential rally in the coming year.

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.

Jon Smith 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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