Finding a small-cap UK stock near the start of a multi-year growth trajectory can produce lucrative results. Recently, we saw this with Filtronic, a former penny share that’s surged more than 700% in just two years.
I’ve been scouring the Alternative Investment Market (AIM) to unearth a potential hidden gem. And I reckon I might have found one in the shape of Windar Photonics (LSE:WPHO), which has a modest £55m market cap.
Let’s see why I’m bullish on this penny stock.
The company at a glance
Windar is a Danish firm that develops low-cost Light Detection and Ranging (LiDAR) optimisation systems for wind turbines. These remotely measure wind speed and direction, helping produce improvements in efficiency and power output.
In simple terms, the system sits on top of a wind turbine and tells it which way the wind is blowing, so it can turn to face it perfectly and generate maximum power. This boosts annual energy production by as much as 4 % while reducing mechanical stress.
Windar has been knocking about on AIM since 2015, but has now started gaining real commercial traction. Just this week, for example, it bagged a new order worth $2.6m from a US customer.
This was for a full wind farm deployment to retrofit Vestas V82 wind turbines. The project represents the eighth full wind farm rollout of its solution in North America.
Positive signs
There are a few things I like here from an investing perspective. First, as mentioned, Windar’s growth is starting to take off. As we can see below, revenue is expected to double this year, then carry on motoring higher.
| Year | Revenue |
|---|---|
| 2022 | €1.85m |
| 2023 | €4.77m |
| 2024 | €4.56m |
| 2025 (forecast) | €9.55m |
| 2026 (forecast) | €14.60m |
Understandably, the company is still loss-making. However, a small profit is expected this year, followed by an even larger one in 2026 (€4.5m). This puts the forward-looking price-to-earnings (P/E) ratio at just 15, very low for a growth stock.
Another thing I like here is that the small firm is founder-led. The photonic tech was developed at the Technical University of Denmark, with CEO Jørgen Korsgaard Jensen involved. Windar secured exclusive IP rights, and Jensen remains at the helm.
Also positive is that Windar is leaning into software with its Nexus OS (operating system). This offers fleet-wide LiDAR monitoring and turbine optimisation.
Software alone claimed about 14% of the recent US deal, and it has started signing pure software deals. This adds recurring revenue to the mix, as well as the promise of higher margins.
Finally, the firm has relocated its operations to a new site in Denmark. It has also been investing in senior leadership roles as it gears up for commercial expansion.
Risks
Naturally, there are risks. Windar is unprofitable, and while it ended last year with €7m in cash, a further capital raise can’t be ruled out at some stage. That could dilute shareholders.
Also, the US wind turbine market is facing headwinds with President Trump in power. However, Windar says overall demand for its products remains strong.
Worth considering
The share price is close to a five-year high, yet remains 61% lower than June 2015.
Windar is perfectly set up for strong future growth, making this penny stock a potential hidden gem at 57p. I’m going to snap up a few shares.
