With growth stalling on the FTSE 100, I’m looking to penny stocks to find opportunties. These micro-cap shares may be riskier than their larger counterparts but can deliver exceptional returns – if the right ones are picked.
The trick is assessing these companies’ earnings potential and how they compare to today’s performances.
Here are five promising UK penny stocks that seem to be trading below fair value, based on future earnings estimates.
| Share name | Return on equity (ROE) | Forward P/E |
|---|---|---|
| Arrow Exploration | 12.7% | 6.9 |
| Distribution Finance Capital | 12.4% | 8.2 |
| Topps Tiles | 89.9% | 8.6 |
| SDI Group | 9.3% | 10.8 |
| hVIVO (LSE:HVO) | 12.9% | 11.7 |
Now, let’s zoom in on hVIVO, because it’s one of the more exciting names in this space.
What hVIVO actually does
hVIVO’s a small UK company that runs clinical trials and lab tests, helping big drug companies test new medicines. Think of it as the ‘science lab for hire’ that big pharma calls when they need careful, controlled human trials completed quickly and safely.
Because demand for drug development and testing has stayed strong, it’s won more contracts and grown its business. It works with large biopharma clients and has built a decent order book. That gives it some visibility on future revenue – but does it equate to share price growth?
Recent growth and results
Financially, the company’s been doing well. In 2024, revenue climbed 11.9% to roughly £62.7m, and EBITDA jumped 26.7% to £12.92m.
Recent H1 2025 results were less impressive but the company reiterated high-single-digit revenue growth in 2026. This will be supported by acquisitions and a strong pipeline of both signed and potential contracts.
ROE, at 13% doesn’t scream huge profits but tells us the business is generating sufficient returns for shareholders. But the standout metric that caught my eye is the share price.
Over the last three months, it’s up more than 60%, which shows how quickly sentiment can change when a small company delivers good news. So can it grow further? Let’s check the valuation.
Valuation, dividends and balance sheet
Despite the recent jump, the valuation still looks quite sensible for a growth stock. With the price just 11.7 times forward earnings, there’s still lots of room for growth if the market sees potential here.
It also pays a small dividend, which is rare for penny stocks. Recent figures show a yield of around 2.4%, calculated from a regular dividend of 0.2p per share. In the past it’s even paid a special dividend when cash built up.
Importantly, the company is effectively debt‑free and sits on a decent cash pile, which gives it more flexibility to ride out any bumps and invest in growth.
Minimising risks
Penny stocks are always risky, and hVIVO’s no exception. Earnings can swing around if big contracts are delayed or cancelled, or if regulators change the rules around drug testing.
If funding for smaller biotech clients dries up, there could be fewer trials to run, impacting profits. On top of that, after a rapid price rise in a short time, the stock could be volatile – sharp dips are just as possible as further gains.
For invetsors building a small UK penny stock basket in their ISA, a company like hVIVO could be a sensible candidate to consider. But, as always, as part of a diversified mix — and with the expectation of some volatility.
