Since selling is half of the investing equation, we asked some of our contract writers to share some of the lessons they’ve learned over the years!

Boston Beer Company

What it does: Boston Beer manufactures a range of alcoholic drinks. Its best-known brand is Sam Adams.

By Stephen Wright. I wish I’d never bought shares in Boston Beer Company (NYSE:SAM). The stock turned out to be a terrible investment for me, but more than that, I bought it for all the wrong reasons. 

I bought the shares in various installments around August 2021. At the time, the stock was falling after some previous good performance and I decided that it looked cheap.

The trouble is, I wasn’t basing that view on very much – a strong balance sheet and a sense the stock couldn’t go much lower. How wrong I was.

The business had been faring badly as a result of overinvestment in hard seltzers. When this turned out to be a passing trend, rather than something more durable, the value of the stock fell sharply.

Ultimately, I got rid of the stock at a significant loss. And the current share price is still well short of where I sold my stake as the business continues to battle headwinds.

The lesson here for investors is clear enough. Proper research into investments involves more than just looking at prices and seeing that they’re falling.

Fortunately, I’ve been able to move on from that investment. And I’m careful nowadays not to repeat the same mistakes.

Stephen Wright does not own shares in Boston Beer Company.

Cineworld Group 

What it does: Cineworld Group is the world’s second-largest cinema chain and operates in the US, Israel and across Europe. 

By Royston Wild. I opened a position in Cineworld Group (LSE:CINE) back in 2018 when I paid 297.4p apiece for its shares. Almost two years later to the day I sold all of them for 25.8p. 

When I bought Cineworld shares the firm seemed to be in great shape. Powered by a steady stream of blockbuster hits, the global box office was sitting at record highs. The UK company had also taken over Regal Entertainment a year earlier to gain a foothold in the lucrative North American market. 

The problem was that the business had loaded itself with debt to pursue global expansion. So when the pandemic came along and its theatres shuttered, it came close to collapse. That’s when I decided to sell up. 

I’m pleased I did, instead of hanging around for a potential turnaround. Cineworld’s share price now sits at just 0.42p. And the company will be delisted when administrators are appointed soon, wiping out shareholders completely. I learnt a valuable investing lesson: be careful when buying businesses that load themselves with debt. 

Royston Wild does not own shares in Cineworld Group. 

Greatland Gold

What it does: Greatland Gold hopes to be extracting gold and copper from its mine in Western Australia by the end of 2024.

By James Beard. Down nearly 75%, my investment in Greatland Gold (LSE:GGP) has been a bit of a disaster.

I should have undertaken better research and considered its valuation more closely before buying the shares.

The company’s flagship Havieron gold-copper project was last independently valued in December 2021, at $1.2bn. This implies that Greatland’s 30% share is worth $360m – 25% less than its current market cap.

But the directors argue this is not reflective of the mine’s potential. They claim it contains 6.5m ounces of gold alone. At today’s prices this is worth nearly $13bn.

They also believe that the company’s other substantial interests — which are in the very early stages of exploration — are overlooked.

And because the company feels unloved, it’s planning to list on the Australian stock market. As part of the process, it’s considering whether to raise more money. But if it proceeds, this will mean further dilution for me.

James Beard owns shares in Greatland Gold.

Shell

What it does: Shell is an upstream producer and downstream marketer of oil, gas and energy products.

By Christopher Ruane. Early in the pandemic I bought shares in London-listed oil major Shell (LSE: SHEL) and US peer ExxonMobil.

What happened next?

Exxon maintained its longstanding Dividend Aristocrat status, continuing to raise its shareholder payout annually. But Shell cut its dividend for the first time since the Second World War.

Since then the dividend has grown sharply, although it remains well below its pre-pandemic level.

Seeing the dividend contract for the first time in decades was a surprise to me. But dividends are never guaranteed, so maybe I should have been less shocked.

What really made me wish I had not bought Shell was that the sudden, huge cut shook my faith in management. Rivals like Exxon kept a steady head, so Shell’s large cut seemed like a knee-jerk reaction to me.

I lost my faith in the company’s management at that point and ended up selling all my Shell shares.

Christopher Ruane does not own shares in any of the companies mentioned.

Superdry

What it does: UK-based fashion retailer operating both online and through a network of 219 brick-and-mortar stores worldwide.

By Zaven Boyrazian. I’ve made plenty of mistakes as an investor over the years. And one of my biggest ones was buying shares in Superdry (LSE:SDRY) in 2017. The stock fell over 90% before I finally exited my position in September 2020. And even today, shares have tumbled even further. So, what happened?

There were a lot of moving parts affecting the Superdry share price. But looking back, there was a glaring warning signs that something was seriously wrong.

The co-founder and CEO, Julian Dunkerton, decided to step down in 2018, selling off £71m worth of shares in the process. Then, only a few months later, he decided to return, stating that his previous departure and massive stock selloff was a protest against the strategy other managers were pursuing.

Internal politics within the executive suite is never a good sign. And considering the fashion stock continued to crash even after Dunkerton resumed his role, this spat has seemingly left a permanent mark on a once-thriving business.

Zaven Boyrazian does not own shares in Superdry.

The post 5 shares Fools wish they never bought appeared first on The Motley Fool UK.

This is where British investors have a significant advantage over buy-to-let landlords. Being a member of the latter group can still be immensely profitable. But it’s becoming increasingly challenging in the face of falling house prices and higher taxes on any rental profits.

Therefore, in 2023, I believe it’s far more lucrative to be a stock market investor capitalising on the benefits of an ISA. It could even result in building a £1m portfolio.

Making a million in the stock market

Investing in equities has a reputation for being risky. And given all the chaos endured in 2022, it’s not hard to see why. But when zooming out over the course of decades, an interesting trend emerges – the stock market goes up.

Why? Because at the end of the day, each stock has a business underneath it. And the businesses which succeed often wipe out any losses incurred by the ones that fail. That’s why the FTSE 250 index has historically delivered an average 10.6% return, despite some of its once-largest constituents like Cineworld tumbling into bankruptcy.

As it turns out, this rate of return is more than enough for patient investors to build a seven-figure portfolio in the long run. In fact, investing just £500 a month at this rate of return would yield a seven-figure Stocks and Shares ISA in under 28 years. That’s roughly only two-thirds of the average time spent in a career. And for those living a more modest lifestyle, it could be sufficient to retire early.

Having said that, 28 years is still a very long time, even for a patient individual. So is there any way to accelerate this process? Yes. It’s called stock picking.

Instead of tracking an index, investors can choose to invest in a specific collection of businesses to pursue higher returns. This requires significantly more time, knowledge, and dedication. But even if a portfolio generates just an extra 3% each year, that’s enough to wipe out almost five years from the waiting time!

Risk vs reward

As exciting as the concept is to build a £1m Stocks and Shares ISA, it’s important to stress nothing in the world of investing is guaranteed. Just because the FTSE 250 has yielded an average 10.6% return in the past, it doesn’t mean it will continue to do so in the future.

The risks are only amplified when it comes to stock picking. Successfully identifying the best shares to buy is a challenge in itself. But remaining calm and emotionally disciplined during times of volatility is even harder. And it’s usually the latter that’s responsible for most stock pickers (even professionals) failing to generate a positive return, let alone beat the market.

Nevertheless, patient investors can leverage the compounding returns of stocks to increase their wealth. And while it’s impossible to completely eliminate risk, taking a disciplined approach can help mitigate it on the path to a larger Stocks and Shares ISA.

The post Forget buy-to-let! Start building to £1m with a Stocks and Shares ISA appeared first on The Motley Fool UK.

The cinema operator now plans to file for administration in July, which will see its shares suspended.

It had previously entered Chapter 11 protection in the US, and tried for an asset sale. But it couldn’t find a buyer.

Cineworld shares are still trading for now. But they fell 23% Wednesday when the latest news broke. The price closed at 0.56p, down 99.8% over the past five years.

Lessons for shareholders

What’s on the cards for existing shareholders? Well, Cineworld had previously told us that its debt restucturing plan “does not provide for any recovery” for them. Nothing seems to have changed there.

Susannah Streeter, of Hargreaves Lansdown, reckons the firm is likely to come out of insolvency as “a dramatically slimmed down player in the movie world“.

So what can we learn?

I suspect we’re going to hear people telling us we should never try to catch a falling knife, and things like that. But catchphrase wisdom doesn’t always tell us much.

Dead cat, or top buy?

The only way to be sure never to catch a falling knife would be to never buy shares that are dropping in price.

But wouldn’t that be madness? It’s exactly what we do want to do, buy shares when they’re cheap and sell when they’re dear.

Turning our noses up at any company that might make a good recovery investment would have closed us to some cracking opportunities in the past few years.

Avoid recovery investing?

Rolls-Royce Holdings has been through deep trouble, for example. But it looks like it’s pulling through. Rolls shares are still down more than 50% in five years. But anyone who bought a year ago has almost doubled their money by today. And forecasts are upbeat.

At the same time, I remember someone during the pandemic telling me they might buy Thomas Cook shares, because they’d fallen so far they must be cheap.

Thankfully he waited. And within a few days the company was no more.

Find the winners

In a stock market crash, it can be really hard to tell the future winners from the losers. For me, it’s down to cash and debt. Both are critical.

Price-to-earnings (P/E) ratio looking really low? Well, the E part could end up at zero. Dividend yield pushed up to 20%? That’s no good if a firm goes bust before it can pay it.

I have a rule of thumb to use in these situations. What I’ll do is look at a company’s net debt, and add that to the market-cap.

Debt-free purchase

That tells me how much an investor would have to pay to buy the whole company, and turn it into a debt-free operation. And I’d judge the firm’s profit and cash flow prospects in line with that.

Looking at things that way during the recent tough times made a lot of apparent bargain-basement stocks actually look badly overvalued to me.

I missed some bargains, for sure. But I didn’t suffer any wipeouts. At least not yet.

The post End of the line for Cineworld shares: what we can learn appeared first on The Motley Fool UK.

But shares are still trading and, in fact, enjoyed a 49% surge last week. So where does this glimmer of hope come from?

More revenue than 2016

The good news here is that millions are still watching the latest releases and munching on popcorn in Cineworld’s theatres.

In fact, since Covid, the company has been raking in money. Revenue is higher than in any year prior to 2016, gross margins are at a healthy 30%, and free cash flow hit £743m in trailing-12-month terms.

This all comes off the back of increasing admissions, which looks just like an impressive post-Covid recovery up to June 2022 (no data has been released since then).

48x increase in debt

The pressing question then: with revenues bouncing back like they are, why is Cineworld in such a mess?

Well, before 2019, the cinema chain was already rocking from the debt it had built up by acquiring rivals like Regal and Picturehouse.

And then the knockout punch arrived in 2020 with Covid. Cinemas were, of course, among the worst-hit businesses during the pandemic.

The company needed more loans to stay afloat and the total debt grew from £213m in 2013 to £8.9bn in 2022.

Now, the financing on that debt is more than Cineworld’s income, which forced it to apply for Chapter 11 bankruptcy late last year.

Cheap at 1p?

The latest news looks positive for Cineworld as a company. Those bankruptcy talks are moving towards a plan to restructure the debt and allow the cinemas to continue to do business.

The bad news? The plan will wipe out shareholders. Their equity will be transferred to creditors who are giving up significant amounts that they are owed.

Anyone who buys in at the 1p share price today is hoping that this plan falls through. Probably only on the off chance that another company comes in at this late hour to acquire it.

Is there any chance of that? After all, there were plenty of rumours going around that the two other big global cinema chains AMC and Vue were both interested. 

Days left

The problem here is that the bankruptcy administrators set a final date of 16 February for potential suitors to come forward and none did. 

Now, there are only days left until Cineworld has its final court hearing about the bankruptcy on 12 June.

Whatever happens there, and it does seem the cinema operator will continue to do business, the shares have little chance of bouncing back.

The post Down to only 1p, what hope is left for Cineworld shares? appeared first on The Motley Fool UK.

Does this massive drop make this penny stock a cheap buy or are we looking at a dangerous value trap? I think the answer starts with decisions made even before the pandemic threw a spanner in the works for the cinema sector.

Cineworld amassed an eye-watering debt

Cineworld management spent the years leading up to the pandemic amassing debt in questionable acquisitions. 

Before Covid-19, Cineworld made a number of questionable acquisitions. One example that becomes important later was the botched $2.1bn takeover of Canadian rival Cineplex in December 2019.

One analyst criticised the management’s attempts to “build an empire in a sunset industry”. Whether you believe the cinema sector is a dying industry or not, the company built up debt like it was going out of style.

So when the coronavirus kept the world in their homes and away from movie theatres, Cineworld and its competitors like Vue and AMC struggled desperately, having little else to sell apart from overpriced popcorn.

And the knockout punch? As pandemic restrictions were lifted, ticket sales and revenue did not return to previous levels. 

This slower-than-expected recovery caused Cineworld to apply for bankruptcy in the US and sent the share price into a tailspin. The market cap now stands at a sorry £58m. 

Some good news? Those revenues are extremely high compared to that market cap, and I see two potential ways out for the firm and its beleaguered shareholders.

The cinema operator has two ways out

The first potential lifeline for Cineworld would be a takeover. The bankruptcy proceedings issued a final date 16 February for suitors to establish their interest, so news should be released soon. Rumours have circulated that both Vue and AMC are interested.

The danger here is that any takeover is unlikely to provide a big win for shareholders. In fact, communications from administrators have indicated that investments are likely to be significantly diluted in the event of a restructuring or sale. 

Another possibility is simply a long road to recovery. How likely is this? Well, the latest earnings revealed an operating profit of $57.3m in the first six months of 2022. So that’s a step in the right direction, but it’s a fraction of the financing costs for the same period of $409m. 

Not only that, but Cineworld doesn’t expect admissions figures to return to previous levels in either full year 2023 or 2024. It might be a long wait before the company can even afford to service its debt. 

Oh, and that takeover of Cineplex? The Canadian firm was awarded $1.2bn in damages to be paid by Cineworld after they pulled out of the deal. 

All being said, if cinema goers returned to pre-pandemic levels and Cineworld can weather the storm until then, investors might find value here. A high-risk, high-reward play, and one with just too much risk for me to be interested in buying.

The post Is penny stock Cineworld a cheap buy at under 4p? appeared first on The Motley Fool UK.

But it looks like I could be wrong, after the shares climbed on the hopes of a takeover.

We’re still looking at a price of only 4p, mind. And the company’s market cap is just a fraction short of £60m. But that 4p is more that twice Cineworld’s 52-week low of 1.8p. So maybe there really is hope.

White knight

If the worst fears are realised, shareholders could lose the lot. But investors often buy in the hope of a white knight rescue, and sometimes it comes off.

Claims emerged mid-February that cinema rival Vue International has secured the financial backing it needs for a bid. According to Sky News, some of the funding is coming from Barings.

It follows on from the Cineworld board telling us it’s engaging in a marketing effort to try to sell the company as a going concern. At the time, any talk of asset stripping was dismissed as not being in the plan.

Up and down

When this news broke, the Cineworld share price quickly spiked up 40%. But since then, the shares have fallen back. Right now, the price is where it was before the bid rumour.

I think the reversal is very likely to be down to the complete absence of any confirmation or denial from Cineworld. In fact, the company has said nothing at all about any takeover. And neither has the alleged suitor.

Still, it does show the potential is there. There appears to be money ready to go into Cineworld shares should any further news be forthcoming. So, is it time to buy now? Should we “buy on the rumour, sell on the news,” as the old investing saying goes?

Investor aims

I’d say it depends on what an investor wants from it. I buy shares for the long term. And I’d only buy under two conditions, both based on billionaire investor Warren Buffett‘s advice.

If I wouldn’t want to own the whole company, then I wouldn’t consider buying a single share of it. And if I don’t want to buy and hold for 10 years, I shouldn’t buy for even 10 minutes.

Cineworld is a £60m company, with something like £7bn in net debt. I wouldn’t want to take that on and try to make a profit from it over 10 years. So I’m not buying.

Quick profit

But what about investors who want to buy now in the hope of a takeover bid making them a quick profit? I think there’s a reasonable chance they could be successful.

It would mean a fair bit of risk, and it’s really just a gamble. Finger in the air, I’d guess at a 50/50 chance between a profit or a wipeout. It’s not The Motley Fool way and it’s not for me. But I do hope it’s successful for anyone who tries.

The post Is Cineworld the best UK penny stock to buy right now? appeared first on The Motley Fool UK.

That is not the case when it comes to Cineworld (LSE: CINE), though. The chain is well-known. Its name is up in lights in towns and cities across the nation. Indeed, the company operates thousands of cinemas worldwide too, including in its key US market.

Despite that, Cineworld is a penny stock.

The shares sell for about 5p apiece. That is almost a 99% slide from its 2019 highs, before pandemic restrictions hit the business badly. If I was to invest £1,000 today and then Cineworld can get back to its old price, my investment would be worth over £60,000! If that happened, Cineworld could turn out to be the bargain of the year (or even decade) for my portfolio.

But how likely is it?

Who owns what

I think it is very unlikely.

Cineworld has the makings of a fine business even now. It has wide brand recognition, a large estate, and lots of expertise when it comes to running cinemas.

But it also has debt. A lot of debt. In fact, the company’s net debt in its interim results was $8.8bn.

Why does that matter when it comes to Cineworld shareholders?

If I buy the penny stock today, I effectively get a very small claim on the company’s assets, along with all other shareholders. But shareholders rank below creditors when it comes to an ultimate claim on a company’s assets.

With net debt of $8.8bn, clearly a lot of creditors will want to get their money back from Cineworld either now or in the future. If that pushes the company into bankruptcy, there may well be nothing left over for shareholders (some parts of the business are already in a form of bankruptcy protection known by its US name Chapter 11, although they could emerge from that in future).

Even if the company avoids bankruptcy, though, the enormous debt load would likely consume any earnings it makes for years or decades to come.

Sizeable risks

Either way, I see substantial risks for shareholders.

Given its penny stock status and small market capitalisation of £65m, some good news could lead the Cineworld share price to jump sharply. We have already seen that this year, when even a rumour of interest from rival Vue saw the shares move up strongly.

Indeed, the Cineworld share price has climbed 31% in 2023.

But buying a share just in the hope of a sudden price jump due to news flow is speculating, not investing. As a long-term investor looking to buy into great businesses at an attractive price, Cineworld looks like a disaster to me.  

It has destroyed shareholder value on a massive scale in recent years. The debt pile may yet destroy what little shareholder value is left. Even a penny stock can get cheaper. I will not be investing.

The post Could penny stock Cineworld be the bargain of the year? appeared first on The Motley Fool UK.

But is the risk-reward balance worth it? And can investors actually get rich by investing in such companies? Let’s explore.

What are penny stocks?

Penny stocks is a term used to describe shares of a publicly listed company that is very small. While some variations exist, a business is typically placed into the “penny” category if they have a low share price of less than £1 and the total market capitalisation is less than £100m.

Due to their small size, these companies are often financially weak, with limited resources, and have unproven business models. This makes them highly susceptible to insolvency, especially during times of economic turmoil. It’s also the reason why penny stocks are notoriously volatile and risky.

In fact, a 2012 study investigated the performance of penny stocks in the US between 2001 and 2010. The results showed that, on average, penny stocks delivered a -60.54% annual return to investors, with share prices being roughly 2.9 times more volatile than companies listed on the Nasdaq exchange.¹

Despite the high risk associated with penny shares, they remain incredibly popular among investors with a high-risk tolerance. Why?

For short-term traders, the stock price volatility creates opportunities to profit from large swings in valuation. But for long-term investors, if a penny stock can beat the odds and achieve success, the potential gains can be ginormous.

Popular UK penny stocks to watch

Penny stocks tend to fall in and out of fashion incredibly quickly, but some do retain interest longer than others. However, it’s worth mentioning that popular penny stocks are not necessarily the best penny stocks to buy. That’s why keeping an active watch list is often a terrific idea for tracking young companies that show promise, but need more time to develop.

Argo Blockchain

Argo Blockchain is a cryptocurrency mining firm that specialises in Bitcoin. The group owns and operates many mining farms in the US that use sustainably sourced energy to mine digital tokens.

With most of its assets held in Bitcoin, any collapse of the cryptocurrency price can lead to similar volatility in the Argo Blockchain share price. This highlights the highly cyclical nature of the business. Nevertheless, if digital currencies continue to see increased adoption, it could be an interesting penny stock to watch.

Woodbois Ltd

Woodbois owns and operates a collection of sawmills and veneer factories based in Africa. It plays a critical role in the supply of hardwoods and softwoods to the region as well as the general global markets.

Today the company has a material portfolio that spans over 23 hectares of forest. However, the firm’s unique operating procedures put a lot of emphasis on sourcing materials sustainably through reforestation. Despite its small size, the group is currently the eighth-most sustainable timber supplier worldwide, making it a potentially lucrative penny stock to watch.

However, further instability could harm the company’s ability to generate consistent, positive cash flows.

How to buy penny stocks in the UK

Penny stocks are bought and sold just like any other publicly traded company. However, due to their small size, these businesses are typically listed on the London Stock Exchange’s Alternative Investment Market (AIM). However, there are some exceptions.

Shares listed on AIM are subject to less strict financial regulations when it comes to reporting information to shareholders. And this can make analysing such businesses trickier due to the reduced level of insight.

Most British investment accounts allow investors to access AIM to buy and sell shares as they do with the main market. This includes special tax-efficient accounts like the Stocks and Shares ISA and Self-Invested Personal Pension (SIPP). However, there are some exceptions.

Due to the higher-risk nature of this stock market segment, not all brokerages provide this access. Therefore, an investor seeking to buy shares in a penny stock listed on AIM must open an investing account with a broker or gain access to a trading platform that allows this.

How is penny stock trading taxed in the UK?

Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of this article is provided for information purposes only and is not intended to be, nor 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.

The taxation process for penny stocks is very similar to any other form of equity investment. Therefore, the tax protection status offered by a Stocks and Shares ISA still applies.

If a regular investment account is being used, then capital gains and dividend taxes from penny stocks are calculated as normal. However, the key difference is the treatment of stamp duty.

Under normal circumstances, an investor purchasing shares in a UK-listed company must pay stamp duty reserve tax. This is equivalent to 0.5% of the total transaction amount. For example, investing £1,000 would result in a £5 fee.

However, shares listed on the AIM are not subject to this tax. And therefore, when purchasing penny stocks listed on AIM, there is no stamp duty to be paid.

Can you get rich trading penny stocks?

Buying shares in a successful business while it’s still in its early stages is an enriching process. It’s not uncommon for investors to enjoy triple- or even quadruple-digit returns over the long run should a small enterprise eventually become an industry leader.

The possibility of ginormous returns is why penny stocks are so popular. But with massive rewards come massive risks.

As previously stated, the stock market’s average return of penny shares is pretty abysmal. The vast majority end up failing to deliver on expectations, leaving many excited investors with little or nothing left of their original investment.

Therefore, penny stock trading for the short term or investing in the long term can be a successful path to becoming rich. However, the odds of succeeding are exceptionally slim.

Do penny stocks go to zero?

As previously mentioned, the weak financial position most penny stocks find themselves in makes them highly volatile investments.

In many cases, the valuation of a business operating in this segment of the stock market is driven by mood and momentum. If investors are feeling optimistic, a penny stock can start climbing significantly just based on expectations of future returns. However, the opposite is also true. When valuations are driven by expectations rather than fundamentals, the slightest hiccup can open the door to a lot of volatility.

This is most commonly seen with young mining exploration or biotech businesses. If successful, these companies can tap into enormous revenue streams and market opportunities. However, evolving from a research-based operation to a production-based one is never straightforward, and there is a high probability of failure along the way.

A mining feasibility study or early clinical trial result that doesn’t provide positive news can cause all the excitement surrounding a business to evaporate, wiping out the share price in the process. And in some cases, if developments end up compromising the long-term potential of a penny stock, it can collapse to zero, leaving investors with nothing.

With that in mind, keeping a list of penny stocks to watch can be a wise move. If a promising young enterprise is trading at an unreasonable valuation, investors can keep tabs on it and wait for a better price. Similarly, if a business has promising technology but needs to prove its financial viability, keeping on a watchlist could help investors stay ahead of the pack when new information comes to light.

Are penny stocks worth it?

Penny stocks are not for everyone. Investing early in a business is already incredibly risky by itself. However, things only get more intense when volatility enters the picture and makes investors constantly question their decisions.

Yet, in exchange for all this risk, investors are granted the opportunity to snap up shares in a business that could explode over the long run. And there are quite a few stories where a small early investment can skyrocket into a mountain of wealth. Those who invested in Apple or Microsoft back in the 1990s know this all too well. That’s why keeping a list of penny stocks to watch might be a prudent decision for investors with a higher risk tolerance.

In more recent years, penny stock investors have also seen some terrific returns. For example, over the last 12 months ending in April 2025, some of the biggest winners on the London Stock Exchange have been penny stocks.

• Quadrise – Up 185%
• Filtronic – Up 104%
• Metals Exploration – Up 40%

Deciding whether or not penny stocks are worthwhile ultimately depends on the individual and their circumstances. Investors who have a low tolerance for risk likely won’t find penny stocks enjoyable or suitable for their portfolios. Yet growth-focused investors with a stomach for volatility may find them to be an exciting opportunity to explore as part of their portfolio.

Alternatives to investing in penny stocks

While penny stocks can bring a lot of excitement to the investing process, their high-risk profile makes them unsuitable for many individuals. Fortunately, there are alternative options for high-reward-seeking investors,

Small-cap stocks share a lot of characteristics with penny stocks. After all, these businesses are still young, offering plenty of upside potential. However, small caps also often have a more established financial and operational position. So, while they are still a risky investment class, the probability of failure is significantly lower than that of penny stocks.

Having said that, small-cap stocks are still sensitive to economic conditions. And over the last five years we’ve had plenty of market turbulence capturing the pandemic, inflation, and most recently a trade war.

As a result, when looking at the leading small-cap index in the UK – the FTSE AIM 100 – investor returns have been pretty weak. In fact, the average annualised return between April 2020 and April 2025 has been just 0.7%. By comparison, the UK’s flagship large-cap index, the FTSE 100, achieved a far better annual return of 12.6% over the same period.

Obviously, some businesses have faired far better than others. But it goes to show that even with small-cap stocks, there are still plenty of risks and economic sensitivities that investors must consider.

In other words, during times of market turbulence large-cap stocks tend to outperform. But when times are good, the opposite is true. In fact, looking at the five-year period between 2016 and 2021, the FTSE AIM 100 was actually ahead by a significant margin at 9.4% versus around 6% for the FTSE 100.

The post UK Penny Stocks: Can They Make You Rich? appeared first on The Motley Fool UK.

That jump followed rumours that the struggling multiplex operator could be subject to a takeover bid from rival Vue International. Cineworld made no comment on those rumours.

Whether or not an offer from Vue does materialise, ought I to buy into Cineworld now? After all, the shares trade for just pennies after losing 87% of their value in the past year.

Massive business challenges

I do not see the Cineworld share price as a bargain. In fact I think it could turn out to be the opposite of a bargain: a value trap. That is what investors call a share that looks cheap but later sees its price fall further.

The company does have some things going for it. It has thousands of screens in multiple markets and long experience of running cinema chains. That may indeed be attractive to an acquirer. It could also form the basis of a successful business for Cineworld, which made post-tax profits of $180m back in 2019 before its business was hit by pandemic restrictions.

But I see a massive problem for Cineworld, which is its debt pile.

The business has over $8bn of net debt. So even if cinema attendance keeps recovering and the business turns a profit, I am doubtful about its prospects as a standalone operation.

Potential takeover target?

That seems to be the view of Cineworld itself, which has been examining the options of selling parts of its business.

So I would not be surprised if there are more rumours of possible suitors. After all, putting aside its debt, Cineworld has some very attractive assets. If a firm bid materialises, or just a credible rumour, that could help drive up the Cineworld share price again.

But that does not tempt me at all to invest, for two reasons.

Creditor priority

The first is a strategic reason based on my approach to long-term investing.

I am not a momentum-based trader, hoping to benefit from possible jumps in a share price caused by news flow. Instead, I seek to purchase stakes in what I think are great businesses selling at attractive prices and hold them for years. While Cineworld could have the makings of an excellent business, with its current balance sheet I see it right now as a terrible business.

A takeover offer might not push up the Cineworld share price anyway.

To me, it looks like a buyer’s market. Potential suitors know that Cineworld is on the ropes and many of them are hardly flush with cash themselves. Meanwhile, Cineworld has a line of creditors out the door who would have priority over shareholders in any bankruptcy proceedings.

Possible wipeout

Even if a purchaser is found for some (or all) assets, the proceeds may well all go to lenders. The shares could end up going to zero.

Cineworld has repeatedly warned that shareholders could be left with nothing in its restructuring process. I will not be going anywhere near the shares.

The post The Cineworld share price just jumped. Should I buy? appeared first on The Motley Fool UK.

According to Sky News, Vue International is eyeing up a bid. The privately-owned cinema operator has, apparently, also lined up financial backers. The Sky report talks of funds managed by Barings and Farallon Capital Management.

In early January, Cineworld announced that it “has been in discussions with its key stakeholders to develop a proposed chapter 11 plan of reorganisation that seeks to maximise value for the benefit of moviegoers and all other stakeholders.”

Buyer search

The update added that “the company will also run a marketing process in pursuit of a value-maximizing transaction for the group’s assets, focused on proposals for the group as a whole.“

At the time, rumours emerged that AMC Entertainment was interested in buying some of Cineworld’s cinema assets. But the company denied it. This appeared to have ruled out any piecemeal offloading.

In the light of that, the mooted takeover approach from Vue is presumably for the entire company. So what’s likely to happen? And are Cineworld shares a good speculative buy now?

Wipeout

As it stood, things looked dire for shareholders. The market cap had fallen to just £60m. And that’s with the balance sheet carrying $8.8bn net debt at 30 June 2022. Creditors get priority in any bankruptcy, with shareholders at the bottom of the pecking order. So any financial rescue deal would surely wipe out existing shareholders’ interests.

After January’s proposal to seek buyers for the company, I expect quite a few investors will have risked a bit of cash. They’d hope to make a short-term profit from any subsequent takeover. Now that an approach has emerged, does it make sense to buy?

On the downside, I fear there might be little profit to be made to offset the risk. Normally, a suitor needs to make a sufficiently attractive offer for shareholders and the board to approve. But these are far from normal circumstances.

Options

What options do Cineworld shareholders have right now? “No, you’ll to have to raise your offer if you want to take on its billions of debt“? That doesn’t sound like a strong negotiating position. Not when the alternative could be a forced asset sell-off that leaves them with nothing.

On the other hand, who else might be waiting to see the size of any Vue International offer? And who might try to beat it? I think a bidding war seems like the best possible outcome for shareholders right now.

Buying today would really just be a gamble. And that’s enough to keep me away. But I hope Cineworld shareholders are close to getting something out it. I’d feared they’d get nothing.

The post The Cineworld share price jumps 20% on takeover rumours. Time to buy? appeared first on The Motley Fool UK.