Purchasing penny stocks can supercharge the growth prospects of an investor’s portfolio. But issues like limited scale, inconsistent revenues, and thinner balance sheets — not to mention the added threat of share price volatility — can also make these small caps risky stocks to buy.
Investors can manage the danger they take on, however, by snapping up penny shares that command low valuations. This pricing cushion can offer protection from share price drops if the company’s growth plan doesn’t pan out as expected.
With this in mind, here are two top shares to consider this month.
Screen idol
The threat to cinema operators is severe as streaming companies like Netflix change the way we consume movies. Yet Everyman Media (LSE:EMAN) continues performing strongly, even as pressure on consumers’ spending power persists.
Everyman — which operates 48 theatres across the country — isn’t your bog-standard multiplex owner. It offers a well-rounded experience, showing niche, independent, and foreign films alongside the usual blockbusters. What’s more, patrons can grab a drink at its bars and go for a meal at its in-house restaurants, too, offering everything people need for a good night out.
This value-added strategy is paying off handsomely. In the 26 weeks to 3 July, group revenues leapt 21%, to £56.5m. Admissions increased 15% from the same 2024 period; ticket prices rose 6%; and food and beverage spend per head was up 5.9%.
Consequently, group EBITDA shot 33% higher over the period, to £8.2m.
Everyman is confident its ‘whole experience’ model will continue delivering the goods, and is eyeing further expansion to its estate — it “plans to open two additional venues in 2026“, it’s said, and enjoys “a strong pipeline of future developments” too.
Naturally, the ongoing streaming revolution will remain a threat to businesses like Everyman for the foreseeable future. But in the case of this penny stock, my view is the danger is more than baked into the cheapness of its shares.
The screen idol’s enterprise value (EV) to EBITDA (earnings before interest, tax, depreciation, and amortisation) ratio is just 2.8 times. Any reading below 10 suggests a share could be undervalued.
Property for pennies
The second top penny share to consider is Schroder European Real Estate Investment Trust (LSE:SERE). Unlike many small caps, it offers the possibility of a large passive income as well as growth, which reflects its classification as a REIT.
Under sector rules, at least 90% of rental-related profits must be paid out in dividends each year.
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That’s all well and good on paper. But with eurozone economies struggling for growth and inflationary pressures persisting, the trust’s returns could theoretically disappoint in the near term.
Such dangers wouldn’t necessarily put me off if I had cash to invest, however. Over the long term, the company — which owns retail, office, and industrial assets, among others — has the potential to deliver spectacular earnings growth. Its focus on ‘winning’ cities with strong economies, robust infrastructure, and attractive environments (like Paris and Berlin) gives it an edge achieving impressive rental income growth.
And, today, the trust offers excellent all-round value. It trades at an 31.8% discount to its net asset value (NAV) per share. As for those dividends, its forward yield is an enormous 7.6%.
