2025’s been a terrific year for the FTSE 100, so far, yet this stellar performance pales in comparison to the returns of some impressive penny stocks.
The UK’s flagship index is up over 10% since January, reaching a new record high. But at the same time, the HSS Hire (LSE:HSS) share price is up almost 60%. And anyone who threw £5,000 into the mix seven months’ ago is now sitting pretty on £7,850.
The question now is, can the penny stock keep climbing even higher?
Investigating the surge
The upward trajectory of this equipment rental firm is a welcome reversal to the downward trend shareholders have had to endure for the last several years. For reference, between its peak in 2021 to the start of 2025, this business saw its market-cap shrink by over 75%. And even with the recent reversal, it’s still down around 60%.
However, if the company can maintain its momentum, it may not be long before the stock recovers. So what’s driving this rebound?
Management’s been busy restructuring the company to streamline operations and refocus strategy on the core UK market. It recently sold off its Irish business, using the proceeds to start mending the cracks in its balance sheet. At the same time, multiple cost-cutting initiatives have been introduced, optimising its network of locations, bolstering efficiency and profit margins.
Given the encouraging progress management’s made to date, investor sentiment’s improving. Even more so, given the firm’s digital marketplace for building services is expanding rapidly despite a generally weak UK construction market.
There are now over 2,200 buyers on its platform, which management’s aiming to grow to 7,000 in the medium term. And given the high-margin nature of its software-as-a-service venture, HSS Hire’s profitability could expand significantly as it scales.
What could go wrong?
HSS Hire’s long-term potential appears to be quite promising. But like all investments, success isn’t guaranteed. The downturn in the wider construction market is also certainly not helping matters.
While interest rate cuts may help spark some fresh growth, equipment rental’s a fiercely competitive industry with titans such as Ashtead Group dominating the supply. This limits the group’s ability to exercise pricing power. And if Ashtead decides to slash prices, HSS will likely have to follow in its footsteps, putting pressure on its profit margins.
That would be particularly problematic given that profitability has yet to stabilise. To be fair, the firm’s financials have started to improve courtesy of its restructuring efforts. But it’s still too early to tell whether management has delivered a sustainable long-term gain or just a temporary short-term boost.
The bottom line
HSS Hire seems to be getting its affairs in order. The journey towards recovery still has a long way to go. But the early progress is encouraging, especially considering the current market environment.
As a penny stock, HSS Hire shares will no doubt continue to be volatile. But given the group’s turnaround potential, it’s a business that may be worth taking a closer look at.
