Investing in penny stocks is notoriously risky. But every once in a while, a diamond in the rough emerges, leading shareholders to earn jaw-dropping returns.
Yet even after these successful businesses leave penny stock territory and become established small-caps, there’s often still plenty of explosive growth potential left. And that’s what’s brought Concurrent Technologies (LSE:CNC) onto my radar.
Following a strategic and leadership pivot in 2021, this enterprise transformed itself from a sleepy computer boards business into a defence hardware specialist. And while the transition wasn’t smooth, it finally reached a critical inflexion point at the start of 2024 that’s since seen the share price almost triple!
Yet with defence spending still on the rise, this explosive performance could be just the tip of the iceberg.
The bull case
Concurrent’s strategic pivot was designed to capitalise on one major regulatory shift – the Sensor Open Systems Architecture (SOSA) mandate.
Historically, most defence contractors have designed their IT systems to be proprietary to lock customers into their ecosystems. This generated substantial pricing power. But for the military, it created enormous headaches. Most notably, components that became unavailable or unsupported forced entire systems to be redesigned and requalified, driving up costs and creating technological drag in the process.
SOSA fixes that by requiring systems to be open and compatible with other systems, keeping costs low and enabling deployed defence technology to keep up with innovation.
That’s exactly what Concurrent now specialises in. And without being dragged down by the technical debt of legacy solutions like most of the leading defence contractors, the business has had little trouble securing new orders and outmanoeuvring the competition.
The result? Record revenues, profits, and order intake. And with the added tailwinds of NATO rearmament, the company appears on track to continue thriving in the coming years.
What to watch
Looking back, the decision to go ‘all-in’ on defence was prudent and indicates good foresight on behalf of management. However, while the business looks well-positioned to continue capitalising on rising defence spending, there are nonetheless still significant execution risks.
To keep up with the rapid expansion of its order book, the company’s in the process of expanding its production capacity at its UK manufacturing site. However, so far, this hasn’t gone smoothly. Challenges with planning permission have created delays, slowing the whole process. And in December, management announced yet another delay to its planned facility expansion.
To be fair, the company also came up with a novel solution of moving its office workers to a new building nearby and reconfiguring its existing space for manufacturing. This new plan’s expected to be executed during the first half of 2026.
But if delays emerge once again, the order book could start growing for the wrong reason – fulfilment disruption. And that, in turn, could result in the group’s momentum slowing, taking its share price with it.
The bottom line
The stage is set for this ex-penny stock to evolve into a serious contender within the defence sector. And with Concurrent barely scratching the surface of its market opportunity, it’s definitely a business worth taking a closer look at.
Obviously, not everyone may be comfortable with investing in the defence sector. But luckily, Concurrent isn’t the only small-cap opportunity I’ve spotted in 2026.
