Investing in penny stocks offers excellent potential for capital growth. Small companies can rapidly increase their earnings and their share price, delivering large returns for early-stage investors.
Many penny shares are also overlooked, as higher-risk companies like these may be ignored by the broader market. With careful research, investors might discover hidden gems before broader market recognition drives up their value.
So which cheap UK penny stocks would I buy for my portfolio if I had cash to invest? Here are two on my radar for 2025.
Serabi Gold
At 76p per share, Serabi Gold (LSE:SRB) trades on a price-to-earnings (P/E) ratio of just 2.6 times for 2025. I think it could be a great way to capitalise on the booming gold price.
Bullion prices have hit repeated record highs this year, the last (above $2,530 per ounce) was struck last month. With central banks looking set to slash interest rates, and economic and geopolitical jitters persisting, demand for the safe-haven asset could continue rising in 2025.
Pleasingly, Serabi is ramping up production at its Coringa gold mine at just the right time to capitalise on this opportunity. By 2026, it hopes to be producing 60,000 ounces a year, up from the 38,000-40,000 ounces it expects in 2024.
Against this backcloth, City analysts have forecast a 58% annual earnings rise next year, following on from the predicted 219% increase for 2024. The company’s planning exploration work to expand resources at its Brazilian assets, too, to deliver strong profit growth beyond this period.
Investing in smaller gold mining companies can be risky, and especially when commodity prices become choppy. But on balance, I think Serabi’s worth a close look from growth investors.
Topps Tiles
At 46.9p per share, Topps Tiles’ (LSE:TPT) shares trade on a less attractive P/E ratio of 12 times for the upcoming financial year (ending September 2025).
But scratch a little deeper and the building products supplier looks like much better value, in my opinion. Analysts expect earnings here to soar 94% in the approaching fiscal period, leaving the firm trading on a forward price-to-earnings growth (PEG) ratio of 0.1.
Any sub-1 reading indicates that a stock is undervalued.
Incidentally, profits are forecast to leap an extra 29% in financial 2026, too. Remember, though, that broker estimates can sometimes miss.
Topps Tiles is a highly cyclical stock, and earnings can sink when consumer spending power falls. Therefore buying the business as the UK economy flatlines again comes with risk.
However, with interest rates tipped to keep falling, profits could still be set to rebound sharply. In addition, Topps Tiles should receive a boost from recovering housebuilding activity. Indeed, government plans to build 1.5m homes between now and 2029 could give the bottom line a good long-term boost.
I’m mindful that share price volatility can be a common problem with investing in penny stocks. However, I think both Topps Tiles and Serabi Gold still look attractive from a long-term angle.
