This penny share just fell 20%. Time to load up?

Penny shares can often soar and slump far more dramatically than bigger stocks. And this one just did exactly that.

| 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.

British Pennies on a Pound Note

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.

I love it when I see a penny share that’s just crashed. Well, I do if I don’t already own it, as penny shares can often fall more than they deserve. And that makes me wonder if I’ve sniffed out a buy.

It happened to the Sanderson Design Group (LSE: SDG) share price on 27 June, as the stock crashed by 20% to 82.5p. It’s back up a bit as I write, but still down in penny stock territory.

The share price soared in 2021. But it’s now lost a whopping 63% from its peak. And it’s down 5.5% in five years.

Should you invest £1,000 in AstraZeneca right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if AstraZeneca made the list?

See the 6 stocks

Created with Highcharts 11.4.3Sanderson Design Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

What it does

Sanderson Design does upmarket wallpapers, fabrics, and other interior decor. A few years ago, sales were rising, and profits were growing along with them.

The stock became a bit of a growth star, and than can often mean one thing… too high a valuation.

The price-to-earnings (P/E) ratio ended 2021 up above 20. That’s often cheap for a growth stock with years of rising earnings ahead of it. But for a small-cap interior decor firm? Hmm.

Sales and profits leveled off, growth investors dumped the stock, and the share price went into a slide.

What happened

What just happened to trigger this 20% crash? A profit warning.

In a trading update on the 27th, the company told us that UK trading conditions “have deteriorated, impacting brand product sales during the months of May and June“.

Total brand product sales fell 9% in the first 22 weeks of the year. And in the UK, the firm’s biggest market, sales dropped 14%.

As a result, “the board expects group trading in the current financial year to be below its earlier expectations. Underlying profits before tax for the year ended 31 January 2025 are now expected to be in the region of £8 million“.

What next

The intention now is to speed up cost savings and other plans. And the board reminded us that it’s in a strong cash position, which provides some safety.

At 31 January, the balance sheet boasted net cash of £16.3m.

We should hear how things develop further on 31 July, when Sanderson is due to post a first-half trading update.

What to do?

Prior to the profit warning, we were looking at a forecast P/E of 14, staying steady at that level for the next few years. That doesn’t include net cash, though. If I adjust for that, I get an equivalent P/E of around 10.

There’s a forecast dividend yield of 4.2%. But we’ll need to wait for H1 results for news on that. My feeling is that the cash balance should mean the firm can afford it, though cost savings might demand otherwise.

The luxury end of the home decor market is perhaps the riskiest. But I can see it picking up again when interest rates drop.

And I can’t help thinking this might be a buying opportunity. I’ll wait for interim figures, though.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Alan Oscroft 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

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »