It’s a sad fact of life that most penny stocks will lose money in the long run. After all, they’re often very small for a good reason, and investing in some is akin to buying a lottery ticket.
However, there are inevitably some that will explode higher as investors reassess their commercial prospects. Here’s one penny share that I think has a lot of potential at its current price.
Wind in its sails
Windar Photonics (LSE:WPHO) is at 59p per share, as I write. It’s up 32% over the past year, giving the firm a modest market cap of £57m.
Windar is a Danish company that develops low-cost light detection and ranging (LiDAR) systems for wind turbines. These sit on top and measure wind speed and direction by scanning a laser beam ahead of the wind turbine. This helps the blades face exactly the right way, boosting annual energy production by as much as 4 %.
This year, revenue is forecast to more than double to €9.55m. In 2026, the top line is expected to jump higher to €14.6m, with a €4.3m net profit. This puts the stock on an undemanding forward-looking price-to-earnings (P/E) ratio of 15.
Part of the reason for this might be due to weak investor sentiment for the clean energy sector in the US, which is a key market for Windar. Green energy subsidies are being cut across the pond, so there’s a risk this could lead to lower sales.
However, the firm remains extremely bullish on it prospects. In June, Chair David George Lis said: “We entered 2025 in a strong position, supported by a solid forward orderbook and a growing pipeline of opportunities…While the North American market, a key region for us, is showing increased caution due to tariff uncertainty, overall demand for our solutions remains strong.”
Windar is also building out a software platform (Nexus), which helps monitor and optimise turbines. This adds higher-margin recurring revenue. In fact, it signed a $2.6m deal earlier this week with a US customer, and 14% of the order value is attributable to software-related revenue.
Low-cost technology
Right now, Windar Photonics mostly makes money selling retrofit LiDAR units. In other words, they’re bolted onto turbines that are already out in the field.
Nothing wrong with that, as there’s already a huge installed base of older turbines worldwide. But a big opportunity is in OEM (original equipment manufacturer) integration. That is, having its sensors built directly into new turbines at the factory.
While Windar faces a fair bit of competition, it offers sensors at about 80% lower prices than other manufacturers. The firm does this by using compact semiconductor lasers instead of the expensive fibre-amplified lasers most rival LiDAR systems use.
Potential hidden gem
After two capital raises in 2024, Windar’s balance sheet is currently in decent shape. However, it’s possible the company could need further cash in future to grow the business. So there’s potential dilution risk here for shareholders.
On balance though, I think the stock is attractive. Looking ahead to 2027, the P/E multiple drops to around 10! That’s unusually low for a company growing strongly, suggesting to me that this might be very undervalued.
As such, I reckon this penny stock is well worth considering for adventurous small-cap investors.
