Penny shares don’t often draw the attention of professional analysts. And with these enterprises mostly too tiny for institutional investors, many promising businesses can end up being overlooked.
But that doesn’t seem to be the case for Kooth (LSE:KOO). Following a double-digit surge in January, it’s now trading at a share price of around 119p – just slightly outside penny share territory.
The digital mental health platform has drawn the attention of the experts at Canaccord Genuity. And after evaluating the business, the team of analysts has placed its 12-month share price target at 330p. That’s a 203% projected potential gain – enough to turn £1,000 into over £3,000!
What’s made these experts so bullish? And should growth investors now rush to buy?
A 200% potential gain?
The surge in January was driven by a combination of factors. But what particularly stood out is the impressive progress being made in California. After signing a deal with the State Department of Health Care Services (DHCS), Kooth has outperformed its registration targets, with one in 40 young Californians signing up since its launch in January 2024.
While Kooth’s US expansion is still in its early days, a successful scale-up of platform adoption across America presents a transformational opportunity for the business, unlocking a potential future surge in revenue. This is what has the team at Canaccord excited.
The California contract alone is estimated to add 145p of value per share for investors. And then combined with the cash on the balance sheet and value generated by the firm’s already-established UK operations, Canaccord’s sum-of-the-parts valuation model estimated the firm’s intrinsic value to be around 330p.
But when digging a little deeper, I spotted something troubling…
Enormous margin of error
For Kooth shares to realise the hidden potential that Canaccord believes it’s identified, the firm’s expansion into California needs to be a success. So far, the registration numbers suggest that its mental health platform is resonating well. But that may ultimately not matter.
In October 2024, the State of Pennsylvania cancelled its contract with Kooth after an investigation revealed child safety concerns.
While politics may have had a role to play, the decision sets a precedent that might deter other states from engaging with the company for future contracts, as well as creating expansion headwinds in states where Kooth is already operating.
Even if that doesn’t happen, the timeline of a full-scale ramp-up in the critical Californian market remains unknown. And subsequently, even the bullish projection from Canaccord reveals shrinking revenues in 2026 and 2027.
So where does that leave investors?
What’s the verdict?
Success in California is the critical catalyst needed for this near-penny share to unleash its growth potential. But as previously mentioned, it isn’t clear if and when this will happen.
In the meantime, the company is struggling to stay consistently profitable, rapidly burning through cash reserves, which shrank by 30% in the first six months of 2025 to £15m.
With that in mind, even though Canaccord’s investment thesis has merits, the outcome for Kooth appears to be binary. Either the share price will surge, or it will steadily collapse as cash runs out. And that’s not a risk I’m willing to take.
