Penny stock Woodbois (LSE: WBI) hit a new 52-week price low of 2.6p on 26 October 2022. In the year to date, the stock has lost 37% of its value and currently trades at around 2.8p per share. It’s always tempting to look at low prices and compare them to past values. For example, Investors were willing to pay 9.4p for Woodbois shares on 5 May 2022.

I could look back further. At one point in May 2017, Woodbois shares were worth 22p. Looking even further back to February 2011, Woodbois was still a penny stock but traded closer to a pound one than at any other time in its history at 53p per share. Could it get there again?

AIM-listed penny stock

Woodbois is still an AIM-listed penny stock, but it is a very different company now than it was back in 2017, let alone 2011. Woodbois was formally known as Obtala when it was a diversified African resources company. In 2011, it held exploration licenses for diamonds, iron ore, and tin in Sierra Leone and Tanzania. These activities appear to have captured investors’ minds over a decade ago. Its forest concessions probably did not get as much attention.

In 2017, the company had assets in Tanzania, Gabon, and Mozambique. But the diamonds had gone. The company was involved in agriculture, food processing, and forestry. By 2019, the company was entirely focused on wood after disposing of a fruits and vegetable business in Tanzania. It changed its name to Woodbois in March of that year.

Woodbois had $66m in net assets in 2011. Today it reports closer to $260m, yet its share price today is a fraction of what it was back then. How can that be? Well, I imagine that the possibility of striking a rich vein of diamonds or tin can inflate a stock’s price well beyond its identifiable asset base much more than owning a lot of forestry concessions can.

Carbon offsets

I think Woodbois is a better business now than it was back then. It owns 485,373 hectares of forest concessions across Gabon and Mozambique. Trees are harvested from these concessions and processed into lumber and veneer products for sale through its trading arm. Woodbois has been steadily increasing its revenues from these operations over the last five years and is getting closer to reporting a profit without the assistance of substantial non-cash gains.

I certainly don’t think it is the type of business that can support a quick run-up in price to 2011 levels. There was a lot of expectation baked into that 2011 number. It has a new business line that could see it get involved in the market for carbon offsets and afforestation projects. There are viability and regulatory hoops for this carbon solutions business to get through, but it could get the share price moving again if it does. The company’s existing operations could also grind its share price higher if they continue the way they have been going.

But ultimately, I don’t own Woodbois in my Stocks and Shares ISA and I don’t think now is a good time to add this speculative penny stock. But I am keeping a close eye on the company to see if it can change my mind.

The post Is it a good time to buy penny stock Woodbois? appeared first on The Motley Fool UK.

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James McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Many investors are reluctant to buy small caps due to the higher risk that can come from them often having fewer financial resources and lower profiles. This is not the case for all of them, however. One penny share I’m considering adding to my holdings is Bakkavor (LSE:BAKK). Should I buy the shares?

Fresh food

As a quick introduction, Bakkavor is a fresh food manufacturing business. It prepares, packages, and sells freshly-prepared foods like salads, desserts, and pizzas and sells these to major supermarkets including UK giants such as Tesco, and Sainsbury’s. It has operations here in the UK, as well as growing presence in China and the US.

A penny share is one that trades for less than £1. So what’s happening with Bakkavor shares currently? Well, as I write, the shares are trading for 84p. At this time last year, the stock was trading for 131p, which is a 35% decline over a 12-month period.

Risks to note

Recent macroeconomic headwinds such as soaring inflation, the rising cost of materials, and a global supply chain crisis, could impact Bakkavor negatively. Operations and sales could be affected by the supply chain issues. And rising costs could eat into profit margins which could affect returns and any dividends paid to shareholders.

Bakkavor has some high profile contracts, especially here in the UK, as noted above. A loss of one of these contracts could be catastrophic for the business. This is because at present, 90% of Bakkavor’s revenue is derived from its UK operations. If this were to happen, performance and returns could be seriously affected.

Why I’d buy this penny share

So to the positives. Firstly, Bakkavor operates in a high-growth sector with defensive capabilities too. The ready-to-go food market has grown exponentially in recent years. I believe this is due to the busy lifestyles we tend to lead these days. With restrictions linked to the pandemic seemingly behind us, this growth should continue. The defensive aspect of Bakkavor derives from food, especially easy to access, convenience food, being an essential staple for all consumers.

Next, Bakkavor shares would boost my passive income stream with an enticing dividend yield of just over 7%. The FTSE 100 average is 3%-4%. A penny share with such a high dividend yield is uncommon, in my opinion.

So what about Bakkavor’s share price value? Well, the shares look good value for money on a price-to-earnings ratio of just nine. A general rule of thumb is that a ratio below 15 could mean shares are trading for bargain levels.

Finally, Bakkavor’s performance track record is impressive too. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see it has grown revenue for three out of the past four fiscal years, with 2020 being the exception due to the pandemic. Profit levels have also increased year on year for the past four years.

Overall, I believe Bakkavor could be a great penny share to add to my holdings. The shares look cheap and offer a juicy dividend yield that is underpinned by excellent performance in recent times. In fact, its 2021 performance surpassed pre-pandemic levels. This tells me that the business could continue its impressive growth trajectory in the future. I would buy Bakkavor shares for my holdings.

The post Should I buy this penny share with its 7% dividend yield? appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Penny stock Made.com (LSE:MADE) has seen its shares drop since its initial public offering (IPO) last June. The shares currently look cheap but are they an opportunity or a value trap? Let’s take a closer look.

Homewares and furniture

Made.com is a homeware and furniture business that designs and sells its products primarily online and via seven showrooms throughout the UK and Europe.

Last June, Made.com decided to make the company public and list shares on the FTSE via an IPO. There were high hopes and the shares listed for 200p each, giving the company a valuation of close to £1.2bn. The first day of trading saw shares drop by 8% but they did recover somewhat to reach a high of 202p a week later.

As I write, Made.com is very much a penny stock, trading for 60p. A drop of 70% between the IPO and current levels is stark considering the positive sentiment around the IPO last year. At current levels, the company’s market cap is just under £250m.

For and against investing in shares

FOR: Made.com’s rise and growth to date has been excellent. Since inception in 2010, it has continued to perform well and gain customers at a healthy rate. Its most recent figures showed it had over 1.3m active customers. It has an ‘great’ rating on Trustpilot with over 106,000 reviews. The IPO was done to raise funds and increase investment to boost growth for the business.

AGAINST: Growth stocks have come under pressure in recent months. This could explain the share price falling to a penny stock status. Many other stocks have also seen their share prices drop too. In times of economic uncertainty, such as now, with soaring inflation and a lack of growth, investors turn to safer options rather than a growth stock like Made.com.

FOR: Made.com has performed consistently in recent years. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see it has grown revenue and gross profit for the past four years in a row. Coming up to date, its full-year report for the period ending 31 December 2021 made for excellent reading. It reported an increase in gross sales, revenue, active customers, and gross margin.

AGAINST: Made.com’s model of designing, manufacturing, warehousing, and fulfilling its furniture is something that could hinder progress. This is due to current macroeconomic headwinds such as the rising cost of raw materials as well as the global supply chain crisis. Increased costs could see profit margins squeezed. A lack of products or delivery issues could send consumers to competitors, affecting performance and returns.

A penny stock I’d keep on my eye on

I must confess I am a Made.com customer and purchased some of its products when I moved home a few years back.

Would I buy Made.com shares for my holdings currently? No, I wouldn’t. There are a few factors putting me off. Firstly, the business is not yet profitable, which worries me. Next, despite its impressive progress to date, it operates in a highly competitive and saturated marketplace. This could hinder growth and performance ahead. Finally, current macroeconomic headwinds could cause issues with growth and returns too.

For now, I will keep Made.com shares on my watch list.

The post This penny stock has slumped 70% since its IPO last year! Is it an opportunity or value trap? appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I think penny stock Foxtons (LSE:FOXT) could benefit from recent events in the UK housing market. Should I add the shares to my holdings?

London’s leading estate agency

Originally founded in 1981 in Notting Hill, London, Foxtons has grown to be London’s leading estate agency. It has over 1,000 employees working at 50 interconnected branches strategically located throughout the city. The Foxtons website receives approximately 10m visits a year.

A penny stock is one that trades for less than £1. Foxtons shares are currently trading for 36p. At this time last year, the shares were trading for 59p, which is a 38% drop over a 12-month period.

The demand for housing in the UK is currently outstripping supply. In recent months, macroeconomic headwinds such as soaring inflation, rising interest rates and costs have impacted the average citizen’s pockets. It has also impacted the housing market with mortgage rates increasing and house prices shooting up too.

For and against buying the shares

FOR: Foxtons’ rise to become London’s premier estate agent is quite the achievement, in my opinion. The business has grown exponentially, and in a saturated market too. I believe this competitive advantage is a unique selling point. Furthermore, the shares would offer me a passive income stream through dividends. The shares yield just under 2%. Of course, dividends are never guaranteed, but a penny stock with a yield close to 2% is enticing.

AGAINST: The Bank of England (BoE) has taken unprecedented steps in recent months to curb rising inflation by raising interest rates. This means that mortgage rates are increasing too. This is not good news for buyers in the market because with prices high, and mortgages offering higher rates, it may not be financially viable to buy just now. This would impact a business like Foxtons too.

FOR: What about Foxtons performance? Well, looking back, 2021 full-year results showed improvement from the pandemic-affected 2020 results. The penny stock reported that revenue increased for the year ending December 31 2021, compared to the same period last year. I do understand that past performance is not a guarantee of the future, however. Coming up to date, a Q1 update released last month made for good reading with overall revenue increasing 8% compared to Q1 last year. Sales revenue was down marginally but lettings revenue increased by 21%. Positive performance could underpin further dividend payments as well as send the shares upwards.

AGAINST: Another concern I do have with Foxtons is that despite its market dominance in London, it is still a relatively small property business in a very large lucrative nationwide and worldwide market. There is every chance that competition could muscle in on its London market share and this could affect any shares.

A penny stock I’d buy

Overall I like the look of Foxtons shares. The recent stock market correction has placed pressure on the shares and made them even cheaper. I’d add a small number of the shares to my holdings and batten down the hatches given the macroeconomic issues set to batter the majority of the housing market. In the long run, however, I think the shares could provide me with decent levels of returns.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One penny stock that could benefit from the recent travel boom is Hostelworld (LSE:HSW). Should I add the shares to my holdings?

Travel bouncing back

When the pandemic struck and restrictions came into force, the travel industry as a whole came to a grinding halt. In recent months, travel bookings and the industry seems to be on the rebound. With summer just around the corner, many businesses could be set to benefit.

Hostelworld is an online portal offering property management and distribution services. Holiday-goers can book a hostel in over 180 countries using the online platform.

A penny stock is one trading for less than £1 and Hostelworld shares are trading for 84p, as I write. At this time last year, the shares were trading for 98p, which is a 14% drop over a 12-month period. More importantly, the shares have rallied nearly 40% from 61p in March due to the stock market correction, up to current levels.

A penny stock with risks

Hostelworld has a chequered past when it comes to performance history. I do understand that past performance is not a guarantee of the future, however. A lack of consistent performance and sustained losses in the past is off-putting when compiling my investment case.

Next, the landscape of travel looks uncertain due to ongoing fears of the impact of the pandemic, which has not disappeared. New variants could hinder the industry and Hostelworld’s performance once more.

Finally, I must note that macroeconomic headwinds such as soaring inflation and rising costs could have a real impact on consumers’ abilities to book holidays. This would impact Hostelworld negatively.

The positives and my verdict

I do believe Hostelworld could benefit from pent up demand and a new appreciation for holidays caused by the pandemic. Recent news of bookings surging and airports struggling with passenger levels (partly due to staffing issues, it must be noted) is encouraging for a penny stock like Hostelworld which should see booking levels and performance increase.

What about Hostelworld’s performance recently? Well, it released a preliminary report for the year ending 31 December 2021 at the end of March. It said revenue increased by 10% compared to 2020 levels. Next, average booking value increased by 30% and cancellations decreased by 43%. Hostelworld also managed to remove €7m of operating costs. A full annual report is due to be released next week.

Despite difficulties in the past two years, 2021 results tell me that Hostelworld’s fortunes could be about to turn around, as well as those of the travel industry as a whole. Yes, there are credible risks and headwinds that could derail progress, performance, and growth ahead.

Would I add Hostelworld shares to my portfolio currently? The short answer is no. I do like the direction of the business and recent results are encouraging. I have made my decision based on a lack of consistent performance history as well as general issues facing the travel industry and continued pandemic fears. There are better penny stock options out there for my holdings.

The post Could this penny stock benefit from the looming travel boom? appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

McBride (LSE:MCB) is a penny stock that I believe could be an excellent recovery play. Should I add the shares to my holdings?

Cleaning and hygiene

McBride is the leading European manufacturer and supplier of private label and contract-manufactured products for the domestic household and professional cleaning and hygiene markets. It sells over 1bn products a year, to 49 of the 50 top grocery stores in Europe.

So what’s the current state of play with the McBride share price? Well, a penny stock is one that trades for less than £1. McBride shares are currently trading for 34p. At this time last year, the shares were trading for 78p, which is a 56% drop over a 12-month period.

I believe McBride shares have fallen due to macroeconomic and geopolitical factors in recent months, but more on that later. These issues have affected performance.

For and against buying the shares

FOR: McBride is an established provider of cleaning products and solutions. This is in a time when the pandemic has created a new focus on hygiene. Currently, there are no signs of the pandemic ever fully disappearing. This means sales of cleaning and hygiene products should continue to increase, in my opinion.

AGAINST: Soaring inflation has led to a rise in costs of raw materials. The supply chain crisis has also affected many businesses. McBride is no different. All these factors have affected the balance sheet. There is no telling if this is a permanent change to the economy in terms of cost of materials and supply chain disruptions.

FOR: McBride has a consistent and long track record of performance. A penny stock with extensive trading information is not a common thing. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that it has reported consistent revenue for the past four years, close to £700m. Coming up to date, a half-year report released at the end of February reported inflationary pressures but I prefer to focus on the steps management took to combat these issues. McBride is undergoing a new pricing strategy that will help boost the bottom line as well as a cost saving initiative. The results of these initiatives will become clearer in the full-year results.

AGAINST: The other issue I have is that McBride may need to increase prices to continue its profitability and growth. Despite the macroeconomic outlook, raising prices can affect relationships and McBride may lose customers due to this. This would have a real impact on the bottom line and any returns I would hope to make.

A penny stock I’d buy

I do believe McBride is a good stock for longer-term recovery despite current pressures. The shares look cheap, on a price-to-earnings ratio of close to 3. Industry peers are predominantly operating on a ratio of close to 10.

I would be willing to add a small number of McBride shares to my holdings. I’d hold on to them for the long term, which is my investing mantra. I would expect to see growth in the longer term.

The post Here’s 1 dirt-cheap penny stock recovery play appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One penny stock I think is an excellent opportunity is Topps Tiles (LSE:TPT). Here’s why I purchased a small amount of the shares for my holdings recently.

Tiling and flooring

Topps Tiles is one of the UK’s best known and largest tiling and flooring retailers with over 50 years of experience under its belt. It has a network of over 300 locations throughout the country.

Topps operates via two store models. Its primary method of operating is what it calls ‘large edge-of-town store formats.’ This means it operates in larger premises away from town centres. In addition to this, it also operates a Topps Tile Boutique arm with smaller locations closer to high streets. Topps also trades directly to customers in its retail business and has a trade arm too.

A penny stock is one that trades for less than £1. As I write, Topps shares are trading for 55p. At this time last year, the shares were trading for 74p, which is a 23% decline over a 12-month period. Recent stock market volatility has placed further pressure on many stocks but has created some attractive buying opportunities.

A penny stock with risks

Topps could currently capitalise on the rising demand for construction projects and home improvement projects. The issues it faces are that of rising costs, the supply chain crisis and the possibility of slower demand. All of these factors could affect performance as well any returns I would look to make as a potential shareholder.

The rise of e-commerce and decline of the traditional high street experience has not been limited to fashion only. I remember buying new tiles for my kitchen online as I found a better price for the exact same product. Topps could suffer at the hand of online only competitors. These competitors don’t need to worry about costs such as rent and property maintenance that physical stores bring with them.

Why I bought this penny stock

Topps Tiles shares look dirt-cheap to me at current levels. The shares sport a price-to-earnings ratio of just 10. For a business with a long, distinguished track record as well as one eye on growth and the future, this is an enticing price.

In addition to this, Topps sports a dividend yield of over 5% as I write! This is higher than the FTSE 100 average of 3%-4%. As a passive income seeker, this was a big factor in my decision to buy the shares. I must note that dividends can be cancelled, however.

The construction and home improvement sectors are growing exponentially and demand for services linked to these sectors are only set to rise. This will benefit Topps Tiles. Topps’ most recent update in March was a two-part update which included Q2 results and an acquisition announcement of the purchase of Pro Tiler. A penny stock that is acquiring businesses that enhance its offering stands out for me. Q2 results were good as well with retail sales in Q2 growing by 18.2% on a two-year like-for-like basis and 45.6% on a one-year like-for-like basis.

I recently purchased a small number of shares in Topps Tiles. I believe it is an excellent quality penny stock with lots of potential for organic and acquisition-led growth. The fact it pays a dividend with a yield better than the FTSE 100 average is a big bonus for me and I plan to hold on to the shares for the long term.

The post 1 dirt-cheap penny stock to buy after its recent dip! appeared first on The Motley Fool UK.

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Jabran Khan owns shares in Topps Tiles. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cheap FTSE 100 penny stock

Broadcaster ITV (LSE: ITV) has seen its market-cap tumble almost 30% year-to-date. Based purely on this, investors might suspect that trading has been awful. However, this simply isn’t the case. The £3.4bn-cap recently revealed a 48% jump in pre-tax profit and 24% rise in total external revenue growth of 24% in 2021. On top of this, the company kept its word and reinstated the dividend.

So what’s got investors flustered? It all seems down to the company’s plan to “supercharge” its streaming services and launch ITVX. As interesting a development as this is, it will require an awful lot of cash to get going. In addition to the cost, some investors are clearly sceptical of ITV’s ability to challenge established giants such as Netflix or Amazon. 

Valid concerns as these are, I believe the market is probably being too pessimistic. ITV still boasts an impressive list of popular productions. Debt is also coming down and a total dividend of 5.71p per share has been estimated for FY22. That’s a chunky yield of 6.81%, easily covered by profit. All this for a penny stock now trading at just six times earnings.

So as bad as the last few weeks have been, I’d be comfortable buying a slice of ITV today, just as I was before this month’s update. 

50% down! 

Another penny stock I’d consider is dotDigital (LSE: DOTD). It provides solutions to other businesses for automating their marketing campaigns across social media and email.

Despite the clear demand for what it does, holders have endured a torrid time of late. The shares have halved in value since the beginning of 2022. What’s brought on this capitulation?

Well, investors’ growing aversion to growth stocks in recent months can’t have helped. Nor can more recent news that full-year revenue growth will now be lower than expected “during the current and future financial years“.

Nonetheless, dotDigital looks like a fundamentally good business to me and possesses many of the qualities I look for. Margins are pretty high. Returns on capital — essentially, what a company gets back for the money it puts in — have been consistently decent too.

Recurring revenue also now stands at 94%, giving the company good visibility on trading. If CEO Milan Patel is right and the “dramatic acceleration” in the adoption of digital marketing is “set to endure,” DOTD might prove a great buy at these levels.

Risks to consider

Cautiously bullish though I am, there’s nothing to say things won’t get worse before they get better for either penny stock. The awful conflict in Eastern Europe may continue impacting general market sentiment, dragging the share prices of both companies lower.

dotDigital might be particularly at risk here. A forecast P/E of 23 still looks punchy considering the amount of competition it faces. ITV shares could also sink lower if, for example, advertising revenue dips again. 

However, the time to buy shares is when the expectations are (temporarily) low. I think that might be the case here. With a bit of patience, I reckon these penny stocks can still deliver. 

The post This cheap FTSE 100 share isn’t the only penny stock I’d consider buying appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV and dotDigital Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Picked well, penny stocks have the potential to dramatically improve my wealth in a short period of time. This is especially true if I hold them in a Stocks and Shares ISA. Doing so means I won’t need to pay tax on any profits I make. 

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Today, I’m returning to look at a company that’s been on my watchlist ever since it was listed in June 2021. Should I finally dip my toe in the water?

Penny stock disaster

Based on recent performance, it’s just as well I’ve held back from pulling the trigger on bathroom specialist Victorian Plumbing (LSE: VIC). From jumping to a 52-week high of almost 342p early on, the share price has since collapsed 75% to 85p. What on earth’s happened here?

I don’t think there’s one single factor to blame. As I remarked at the time, it’s clear that Victorian Plumbing’s IPO was opportunistic and designed to coincide with the boom in DIY seen since the beginning of the pandemic. This allowed original investors to make an absolute killing. And I can’t really blame them for wanting to achieve the best price possible for their stakes. 

The issue with being the largest IPO ever on the junior AIM market is that new investor expectations jumped ahead of reality. Since those heady days, Victorian Plumbing has experienced issues with its supply chain (like many other businesses). Revenue growth has also slowed as the rush to buy new bathroom suites replaced with spending on other things.

Buy the (big) dip?

On the one hand, I’m now able to buy stock in a cash-generative company for 17 times earnings, based on analyst forecasts. That’s not screamingly cheap but nor is it is eye-poppingly expensive. Interestingly, VIC also has a PEG (price/earnings-to-growth) ratio of just 0.5. Anything less than one suggests new buyers are getting a lot of bang for their bucks. 

I’m also attracted to Victorian’s online-only/capital-light business model. It’s already profitable (in contrast to a lot of highly-valued fluff out there) and there’s a decent amount of cash on the books.

Furthermore, the company has a sizeable share of the market and customer reviews are generally very positive. To round things off, CEO/founder Mark Radcliffe retains a huge 47% stake. If anyone wants the company to bounce back, it’s him. 

But let not get ahead of ourselves. An obvious risk with this penny stock is that things could get worse before they get better. A military conflict in Eastern Europe has the potential to hit growth stocks like this, even if it’s irrelevant to selling bathrooms. Margins look like being squeezed for the foreseeable future too.

Victorian Plumbing also has a small free float. Just 35% of the company’s stock is available to trade in the market. That could exacerbate an already bad situation. It only takes a small amount of selling to really move the needle. On a more optimistic note, the reverse is also true. 

My verdict

I do feel like the (prolonged) sell-off of this penny stock has been overdone. Nevertheless, I’m inclined to wait until after this month’s AGM (and a potential update on trading) before deciding whether now is the time to strike.

For now, this penny stock stays on my ISA watchlist.

The post 1 penny stock I’m considering for my Stocks and Shares ISA appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As I speculated in March last year, car dealer Lookers (LSE: LOOK) was to enjoy a brilliant 2021. Throw in 2022’s gains so far and it’s now in serious danger of losing its penny stock status. Not that I expect holders will complain. 

Penny stock power

Since February 2021, shares in the small-cap have soared over 150%! Contrast this with the 17% and 8% uplift in the FTSE 100 and FTSE 250 respectively and I have more evidence of how minnows have the potential to turbocharge my wealth. This is assuming, of course, I select them carefully. A healthy bit of luck goes a long way too. 

Still, the reasons for Lookers incredible returns aren’t hard to fathom. A shortage of semiconductors and a consequent slowdown in manufacturing has accelerated the price of new and second-hand vehicles. This, when combined with the growth in savings as a result of multiple UK lockdowns, was always likely to benefit the £380m-cap company.

With Covid-19 travel restrictions throwing holiday plans into disarray, the rush to buy a new (or nearly new) set of wheels was inevitable in hindsight.

Can this continue?

January’s trading update certainly made for pleasant reading. Trading “remained strong” and “above the Board’s expectations” in the final quarter, thanks to “excellent new and used vehicle margins“. Like-for-like after-sales revenues were also up 7.1% compared to the previous year. 

The share price also received another huge boost at the end of last month after Constellation Automotive Holdings snapped up almost 20% of the company. According to chairman Ian Bull, the new investor regards the company as “significantly undervalued“. Then again, you wouldn’t expect them to say anything different. No less than 102p was paid for each share!

Time will tell if this proves to be a good bit of business. Lookers certainly appears cheap at face value. Even with the near-39% drop in earnings per share expected in 2022, the stock still changes hands at a P/E of just nine. A forecast dividend yield of 3.3% is also in the offing to prospective owners.

Based on these attractions, I’m cautiously optimistic this penny stock can continue rising. That said, I don’t doubt they’ll be some profit-taking soon. I also need to remember that margins are wafer-thin and demand will surely moderate as supply chains get back to normal.  

Bouncing back in 2022?

Since I highlighted its potential at the same time as Lookers, it’s worth mentioning that I remain optimistic about freight manager Xpediator (LSE: XPD). That’s despite the company’s share price coming back down to earth after motoring during the first half of 2021.

January’s trading update on FY21 didn’t contain any nasties as far as I could see. Revenue “in excess of £300m” is now expected. That’s growth of at least 36%. Adjusted pre-tax profit will also be “well in excess of £8.5m” compared to the £7.2m achieved in 2020. 

Looking ahead, a new 200,000 sq ft facility in Southampton is predicted to bring efficiency and capacity benefits this year. Increased business in Europe is also likely as Covid-19 restrictions are lifted.

For balance, it’s worth mentioning that this penny stock’s margins are as thin as those of Lookers. The current P/E of 13 is also fairly high, relative to the industry average, although the shares do come with a well-covered 3.1% dividend yield.

The post I was right about this penny stock! Here’s another one I’d buy appeared first on The Motley Fool UK.

More reading

• Don’t miss this once-in-a-decade opportunity to profit from the stock market’s AI hype
• £10,000 invested in easyJet shares on 1 April is now worth…
• Down 29%, should I buy Palantir for my Stocks and Shares ISA?
• Selling for £1, are Lloyds shares still a bargain?
• How much could spending just £5 a day on UK shares earn in passive income?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.