Buying penny stocks means investors need to be comfortable with some potentially pretty extreme volatility. But for those with the stomach and ability to spot hidden opportunities, these tiny enterprises can deliver explosive results – not just in terms of capital gains, but dividends as well.
Take Oxford Metrics (LSE:OMG) as a prime example to consider. The penny stock trades at around 56p, and offers a market-average-beating 5.9% dividend yield. And at this price, anyone who puts just over £17,300 to work to buy 30,769 shares can instantly start earning £1,000 passive income each year while the group continues along its growth journey.
In fact, if the team of expert analysts at Canaccord Genuity Group is correct, the share price could soon rise to 85p over the next 12 months.
So with a near-6% dividend yield on offer and a 52% potential capital gain, is this a no-brainer for UK growth investors comfortable with a bit of volatility?
The bull case
Let’s start with a quick introduction. Oxford Metrics is a global leader in the niche field of motion sensing. It’s hardware and software tracks motion and analyses the data through its own suite of software tools.
For the most part, this technology has historically been used in creative industries including video games and visual effects.
However, more recently, the group’s delivering solutions for smarter manufacturing, offering high-precision machine vision to help automate factory production across the aerospace, automotive, pharmaceutical, and medical device industries. And this broad range of industrial applications is translating into impressive growth.
In its 2025 fiscal year (ending in September), revenue from smart manufacturing projects skyrocketed 341%, from £2.9m to £12.8m, supported by increased interest from customers such as Boeing, NASA, and BMW.
This surge helped offset the lower sales from its entertainment motion capture segment, which has been caught in the crossfire of recent headwinds within creative industries.
With manufacturers investing heavily in automation in the pursuit of greater efficiency and wider margins, Oxford Metrics’ long-term growth potential looks quite exciting. And with that in mind, it isn’t so surprising to see experts become optimistic about what’s on the horizon.
The bear case
As impressive as Oxford Metrics’ technology is, the business still has some critical weak spots. The cyclicality of the entertainment sector has demonstrated the challenges it can create for the company. And while the smart manufacturing segment has helped offset this impact, it too is exposed to cycles in demand.
A simultaneous downturn across its key markets could spell disaster, especially for dividends, which are already operating under very tight coverage margins.
The team at Canaccord’s betting on a rebound in motion capture revenues this year. And to be fair, the 21% jump in order intake does suggest that the entertainment cycle’s heating back up again. But should any new spanners be thrown into the works, or if this recovery is delayed, the firm’s forecast could prove far too optimistic.
The bottom line
With earnings in the red, Oxford Metrics doesn’t have the strongest of financials. But with good execution and some more favourable market conditions, that could quickly change. That’s why I think this penny stock deserves a closer look. But it’s not the only opportunity I’ve got my eye on right now.
