Penny stocks are usually defined as companies with a market-cap below £100m and a share price below £1. As a result, the firms in this category tend to be small, but with high potential. Even though it’s higher risk, there can be some great opportunities I can find in this segment of the market. Here’s one I’ve just spotted.
The firm in question
I’m talking about the Triple Point Venture VCT (LSE:TPV). The stock has a market-cap of £68m, with a current share price of 94p. Triple Point’s the investment manager responsible for making the decisions of what to buy and sell within the trust. It’s primarily focused on providing venture capital (ie early-stage cash) to hot young businesses that have some connection to tech.
In the H1 interim report, it detailed how it had deployed £4.3m during this period, investing in three new companies alongside putting more money to work in three existing firms.
Over the past year, the share price is down a modest 2%. In theory, the price should reflect the net asset value (NAV) of all the businesses that Triple Point’s invested in. From the last valuation date, the stock actually trades at a 5% discount to the NAV.
Why I think it could do well
After looking at some of the new and existing investments, I think the stock could do very well in coming years. After all, if the value of the underlying investee does well, the share price for Triple Point’s going to follow.
For example, it recently invested in Treefera, a forestry data company that uses artificial intelligence (AI) to inform users about everything from forest health to volume available to harvest. I really like how this ties in a key theme, environmental concerns, to AI.
Another new investment is The Electric Car Scheme, which works with businesses to provide attractive salary sacrifice solutions to boost use of electric vehicles (EVs). Again, the focus on going green and the way it uses tech makes this a really interesting company to be involved in.
Potential risks
Of course, investing in early-stage companies is risky. The firm tries to reduce this by using diversification in a few different ways. The obvious one is by holding a large number of portfolio companies. Another way is sector diversification via investing in businesses across several different sectors.
Finally, it “mixes earlier vintages of investee companies (that) mature over time and mix with newer investments so that the portfolio covers various stages of the venture lifecycle”.
I like this approach, which should allow the penny stock to grow in a sustainable way. One concern I do have is that most of these investments aren’t with public companies. So if it quickly needs to sell a stock for any reason, it’ll be difficult. If a company’s doing badly, it could be hard to find a buyer of the stock.
Overall, I think the trust could do well, based on the portfolio companies taking off. I’m seriously thinking about investing in the near future.
