One of them is Foxtons Group (LSE: FOXT), a familiar name in London real estate. Despite being a fixture on most high streets, the company has a fairly small £160m market-cap, with shares trading at just 53p each.

And it’s not just cheap on the wallet. Considering its recent earnings growth, it looks significantly undervalued, with a price-to-earnings growth (PEG) ratio of just 0.09.

Foxton’s hasn’t crossed my radar before but several other analysts are keeping an eye on the stock. Among them, four give it a Strong Buy rating with an average 12-month price target of almost 70%.

Strong financials

I tend to take analyst ratings with a pinch of salt but the company’s financials go a long way to support those targets. In its latest half-year results up to 30 June, revenue rose 10% to around £86m. Meanwhile, adjusted operating profit climbed 31% and net free cash flow improved to £3.6m from a loss of £0.9m the previous year.

Overall, a pretty decent result.

It also pays a modest dividend of 1p per share, equating to a low but well-covered yield of 2.22%. The dividend was increased 30% in the latest upgrade, signalling strong performance and dedication to shareholder. 

That said, the broader UK housing market isn’t exactly stable right now. Interest rates, inflation and government policy changes are all ongoing risks that the company faces.

In its latest Q3 results, revenue from sales declined 7%, highlighting the cyclicity of the industry. If declines continue, it could have a notable impact on its 2025 final results, hurting profits and the share price.

Stable earnings

The business has been shifting focus to lettings as part of a strategy to reduce exposure to the more volatile residential sales cycle. These now account for roughly two-thirds of total revenue and grew 4% in the first half.

By contrast, the property sales division saw faster growth of about 25% in the same period, although this was partly driven by transactions pulled forward ahead of a stamp duty change early in the year.

According to the company, the London rental market remains relatively stable, with supply improving while demand stays strong. If that’s accurate, it should continue to enjoy consistent earnings growth going forward.

My verdict

Foxtons recently announced a revised medium-term target of £50m in adjusted operating profit, up from a previous level of £28m-£33m. It’s also aiming to achieve margins as high as 20% and up to 70% net cash flow conversion.

Those are fairly lofty goals, highlighting the confidence the business has in its operations and the wider market. And that’s not surprising: with debt levels low and interest cover high, it appears financially solid.

However, investors should acknowledge that macroeconomic factors such as interest rates and housing demand will remain key influences on performance through the remainder of the year.

Overall, I think it looks like one of the more promising value stocks to consider right now, albeit in an uncertain and somewhat risky market.

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Foxtons is ready for recovery

Estate agency Foxtons (LSE: FOXT) is a key player in the London housing market. However, this business has been through a bad patch over the last few years and hasn’t performed as well as I’d have expected.

Its share price has fallen by more than 80% since its flotation in 2013. But last year’s results showed a welcome rise in profits and I think the group is well-positioned for a strong turnaround.

One important change is that the company has increased its exposure to the lettings market, which now generates 65% of revenue. The importance of this is that rentals are generally recurring and non-cyclical.

While the upfront fees available from house sales can be higher, this sector of the market is heavily cyclical. As we’ve seen over the last year, the housing market can slow dramatically from time to time.

Foxtons also has a newish chief executive. Guy Gittins has returned to the business where he started his career 20 years ago. A highly experienced London property agent, he’s determined to rebuild the brand and invest in growth.

I think it could be a sensible buy at current levels, on a medium-term view.

A market-leading business

My next pick is kettle control maker Strix (LSE: KETL). This little-known business is the world’s largest producer of kettle safety controls — the part that makes your kettle switch off when it boils.

It has market share of about 50% for these parts. This reflects its trusted relationships with many manufacturers. The only problem with this is that it doesn’t leave much opportunity for growth.

To try and solve this problem, Strix has been buying up small companies in related areas, such as hot water taps and water filtering. The company has also built a new factory in China

Unfortunately, these moves have left the company with quite a lot of debt. The group’s financial situation was also made worse by supply chain problems and Covid disruption in China last year.

A dividend cut is also expected in this month’s results, although broker forecasts suggest the stock could still yield 6%.

I’m not sure whether Strix’s recent acquisitions will ever be as profitable as its core business. One risk, in my view, is that some of this spending will eventually be written off.

However, I am encouraged by a recent change of tone from the company’s management. In an update in January, Strix said that was not planning any further acquisitions or factory builds.

Instead, the company wants to return to its “core operating model” of being highly cash generative.

If chief executive Mark Bartlett can deliver on this promise for shareholders, I think the shares could be cheap at current levels. If I was looking for a small-cap value stock to buy today, I’d certainly consider Strix.

The post 2 penny stocks I’d buy now for the next bull market appeared first on The Motley Fool UK.

The story behind the stock

For those of us who live in London, the green-and-yellow Minis of Foxtons (LSE:FOXT) are a familiar sight. The estate agent proudly states that “we generate over 2,000 new buyers and 11,000 new renters each week”.

Since 1981, the business has grown to be the leading estate agent in London. It currently sells a property every 88 minutes. Foxtons was listed on the stock exchange back in 2013, but the share price is down 12.5% over the past year.

It wasn’t always classified as a small-cap stock. In fact, when it first went public, the company had a value of around £750m. This has fallen to around £110m today, something that will cause some to raise their eyebrows!

The largest hit to the business in recent years came with the market crash in early 2020 when the pandemic began. The share price halved in value within the space of a month and hasn’t been able to recover to previous highs since then.

A positive view from here

Even though property prices have been falling (and mortgage rates rising), Foxtons has performed well recently. In a trading update last week, it noted that revenue and adjusted operating profit are expected to be above market expectations for 2022. Revenue growth of 11% year on year is very strong given the situation in the property sector.

The share price is up almost 19% over the past three months, showing that investors clearly think the business is also bucking the broader trend.

Why I think the stock could double

From current prices, I’m targeting a move back to the 70-75p region. The share price was last here in February 2021.

Financially, the business is now larger and more profitable than it was then. So that isn’t the main driver. I feel that Foxtons’ outperformance within the property space and market sentiment towards the property market will be the two key points.

I feel that the business can continue to outperform in 2023. Even if sales are slower, rental demand in London is sky-high right now, due to people who can’t afford to buy. This should help to keep revenue elevated. At a time when homebuilders and other stocks that are property-related could struggle, I think investors will pivot into buying Foxtons shares.

The second element is restoring market sentiment back to 2021 levels. Granted, this is unlikely to happen this year. But I do feel that within the space of the next few years, an economic recovery will put us back in that place. When it does, I’d expect the share price to lift back to the same level as early 2021 (double from the current level).

High mortgage rates and a new CEO are both risks for the year ahead. But I think the potential rewards outweigh the risks, so I’m looking to buy the stock now for my portfolio.

The post I think this FTSE small-cap stock could double my money appeared first on The Motley Fool UK.

A property penny stock

The first firm I’m considering buying shares in is Foxtons (LSE:FOXT). The estate agent has a market cap bang on £100m, with a share price of 32p. Over the past year, the stock is down 27%.

When I think of property-related stocks, I often go to Rightmove. Or I consider buying a traditional homebuilder, with several options available to me in the FTSE 100. Yet my radar never really picks up on alternatives such as Foxtons.

The company has a natural correlation to the fate of the property sector. This is one of the reasons why the share price is down in 2022, given the fact that higher interest rates and slowing growth puts pressure on property prices and mortgages.

However, I think the stock is good value at current prices. The Q3 results showed that revenue for that period was up 25% on the same quarter last year. The company is seeing strong demand in the lettings side of the group. This makes sense. Even if people can’t afford to buy, they still have to rent and live somewhere.

I admit that the focus around central London property could be more of a risk than a benefit. Yet as far as property stocks go, the lean operating model is appealing to me. I’ve put it on my December watchlist.

An interesting REIT to consider

The second option I like is Capital and Regional (LSE:CAL). With a share price of 53.5p and a market cap of £89m, it fits the penny stock tag.

The business is a real estate investment trust (REIT) that focuses on UK retail and leisure opportunities. It has a portfolio worth around half a billion pounds, mostly in community shopping centres. By picking up rent and leasing payments, the business can generate an income that gets paid out to investors via the dividend.

The share price has dropped by 15% over the past year. A large part of this was due to the halting of the dividend payment due to the business posting a loss as it came through the pandemic. However, I think now is a good time to buy the stock.

In the half-year results from late summer, adjusted profit jumped 87% to £5.8m from the same period in 2021. With stronger occupancy and rent collection, I think the REIT could be a good addition to my portfolio.

I’m adding both penny stocks to my watchlist for December, to consider buying when I have free cash.

The post 2 under-the-radar penny stocks I think have big potential appeared first on The Motley Fool UK.

Estate agents

As a quick reminder, Foxtons is London’s leading estate agency. It currently has approximately 50 interconnected branches throughout the city and a workforce of over 1,000 employees. The Foxtons website receives nearly 10m visits per year.

A penny stock is one that trades for less than £1, Foxtons shares are currently trading for 40p. At this time last year, the stock was trading for 54p, which is a 25% decline over a 12-month period.

A penny stock with risks

One of the biggest risks I see with Foxtons shares is the action the Bank of England (BoE) is taking to combat soaring inflation. The BoE has increased the base interest rate, which means mortgage payments are now higher too, and obtaining a mortgage is also more difficult. London house prices have always been higher than average but it seems buying a property there is harder than ever. Some even anticipate a housing crash could be on the horizon. Even a bear housing market could impact a business like Foxtons.

Next, Foxtons has impressively grown into London’s leading agency but the national market in the UK is vast. Foxtons does not have much of a presence outside London, which means it is heavily reliant on a market that is saturated and where competition is growing every day. Competition and a lack of diversification in terms of location could hurt performance and returns.

The bull case and my verdict

So to the positives then. I saw that Foxtons has a decent track record of performance. I am aware that past performance is not a guarantee of the future, however. Looking back, it has grown revenue three out of the past four years, with the pandemic-affected 2020 seeing a small dip in levels.

Next, Foxtons’ growth story to date is a positive point too. The London housing market is vast and lucrative, so to be able to navigate its way to the top of this is impressive. House prices in London are statistically higher than the rest of the country. This tells me that there is lots of money to be made for estate agents and Foxtons could leverage its position to profit here. This would boost its balance sheet and potential returns too.

Finally, Foxtons shares currently pay a dividend that would boost my passive income stream. Its current dividend yield stands at just over 1.2%. A penny stock that pays a consistent dividend is not easy to find. I am aware, however, that dividends are never guaranteed.

Overall, I would be willing to open a small position in Foxtons shares. Its unrivalled position in the London market is a big factor in this, as well as the passive income opportunity. As a penny stock, I am expecting some volatility, especially currently due to macroeconomic headwinds.

The post Is this property penny stock one to buy or avoid? appeared first on The Motley Fool UK.

Superdry

Superdry (LSE: SDRY) is a clothing company. It designs, produces, and sells clothing items and accessories. This is done primarily under the Superdry brand. With the Superdry share price down by 35% this year, a huge director transaction was executed. The purchase of a large sum of shares could boost investor sentiment.

• Name: Julian Dunkerton
• Position of director: Chief Executive Officer
• Nature of transaction: Acquisition of shares
• Date of transaction: 27 May 2022
• Amount purchased: 1,805,172 @ £1.42
• Total value: £1,144,954.58

Foxtons

Second on the list of director dealings is Foxtons (LSE: FOXT). The firm is a British-based estate agency. Foxtons serves as a go-between to buy, sell, and let properties. The Foxtons share price has had a slight hiccup this year, down 5%. A high-ranking director took the opportunity to purchase a substantial amount of shares.

• Name: Nigel Rich
• Position of director: Chairman
• Nature of transaction: Acquisition of shares
• Date of transaction: 30 May 2022
• Amount purchased: 140,000 @ £0.39
• Total value: £54,180

Big Technologies

Last on the list of director dealings is Big Technologies (LSE: BIG). Big Technologies provides products and services to the remote and personal monitoring industry. It does so under the Buddi brand name in the United Kingdom, Australia, the US, and Colombia. Its share price is firmly in the red at -15% this year. However, this didn’t stop a top director from transferring a number of leftover shares to his self-invested personal pension (SIPP) account after buying and selling.

• Name: Daren Morris
• Position of director: Chief Financial Officer
• Nature of transaction: Acquisition of shares
• Date of transaction: 27 May 2022
• Amount purchased: 10,000 @ £2.91
• Total value: £29,100

• Name: Daren Morris
• Position of director: Chief Financial Officer
• Nature of transaction: Disposal of shares
• Date of transaction: 27 May 2022
• Amount sold: 10,000 @ £2.83
• Total value: £28,300

• Name: Daren Morris
• Position of director: Chief Financial Officer
• Nature of transaction: Acquisition of shares
• Date of transaction: 30 May 2022
• Amount purchased: 15,000 @ £2.82
• Total value: £42,300

• Name: Daren Morris
• Position of director: Chief Financial Officer
• Nature of transaction: Disposal of shares
• Date of transaction: 30 May 2022
• Amount sold: 15,000 @ £2.81
• Total value: £42,150

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this instance, partnership shares were bought and sold from the deals listed. Employees are usually allowed to buy shares on a monthly basis through a SIP. But they can also buy shares at the end of an ‘accumulation period’. If there is one in effect, employees can buy shares at the market value either at the beginning or end of the period.

The post Director dealings: Superdry, Foxtons, Big Technologies appeared first on The Motley Fool UK.

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.

The post Could this penny stock benefit from the current housing market? appeared first on The Motley Fool UK.

Cineworld share price outlook 

Fundamentally, the company is fighting for survival. It has a tremendous debt pile, which could take decades to clear, and management is currently locked in a legal battle with Cineplex. 

The Canadian cinema operator is seeking billions of dollars from Cineworld after the latter failed to consummate its deal to acquire its peer. 

Still, it is not all doom and gloom for the Cineworld share price. Thanks to an impressive slate of film releases over the past six months, the group generated positive cash flow in the last quarter of 2021. This marks a turning point for the company after nearly two years of losses and cash outflows.

Unfortunately, there is no guarantee this trend will continue. There are plenty of risks on the horizon that could hit consumer sentiment, and as a result, sales. And considering these risks, I am avoiding the Cineworld share price.

However, there is one penny stock that I would be happy to add to my portfolio in its place. 

Penny stock alternative 

When I am looking for portfolio additions, I like to focus on businesses with a competitive edge. This can be anything from a solid brand to a unique market position. Cineworld has neither of these qualities.

But estate agent group Foxtons (LSE: FOXT) does. The business exhibits some of the qualities I look for when seeking out great businesses. It has a strong brand in the London market and a recurring income stream from its rental division.

On top of these factors, it has a relatively strong balance sheet and has been spending cash to acquire peers across the UK to expand its footprint.

Admittedly this strategy has pushed the company from a net cash to a net debt position in the past three years, weakening the balance sheet. Still, the firm is highly profitable, so this debt seems sustainable. 

Foxtons stock has also slumped 50% over the past year. However, unlike the Cineworld share price, the firm’s profits have been expanding. 

An exciting opportunity 

I think this presents an opportunity for investors like myself. While the company may encounter some risks over the next 12 months, such as a property market slowdown due to higher interest rates, I think it has a strong position in the UK property market. This should enable it to navigate any challenges. 

This is why I would buy shares in the penny stock over Cineworld today. I think the rest of the market is overlooking the investment opportunity and potential for the company over the next few years.

The post As the Cineworld share price slides, I’d buy this penny stock instead appeared first on The Motley Fool UK.

Still, I like to own a selection of penny stocks in my portfolio to build exposure to this part of the market.

As such, here are two companies I would be happy to buy and hold for the next decade. 

Penny stocks to buy for growth

The first company I would buy is estate agent Foxtons (LSE: FOXT). I believe that focusing on enterprises operating in defensive markets is one of the best ways to reduce the risks of investing in small businesses.

The property market is not entirely defensive. But, in the UK, the property sector makes up such a large part of personal wealth it does not seem unreasonable to suggest that this industry will only grow in the decades ahead. 

With its focus on the London market, Foxtons is better positioned than many of its competitors to capitalise on this trend. Over the past couple of years, the company has been going through somewhat of a transition. After a series of strategic missteps, the group plunged to a loss in 2018. And it then lost around £30m between 2018 and 2020. 

However, City analysts expect the company to return to profitable growth in the next two years. So as the group builds on its recovery, I would buy it for my portfolio of penny stocks. 

Challenges it could face going forward include a property market downturn and higher wage costs, which would almost certainly hit profit margins. 

Premium market

Private jet broker Air Partner (LSE: AIR) is another company I would buy for my portfolio of penny stocks. 

This firm’s profits jumped 100% last year as demand for private air travel and air cargo services surged. Management is using last year’s windfall to fund acquisitions, expanding the company’s footprint. 

The growth strategy should help the enterprise grow its top and bottom lines as we advance. Further acquisitions could be on the cards, and as the business expands, I think the corporation will achieve substantial returns for investors over the next decade. 

That said, air travel is a cyclical industry. Air Partner is trying to expand into more predictable sectors, such as safety, but its primary business of organising planes for wealthy customers still dominates. This suggests the company’s profits could collapse in an economic downturn. 

Despite this risk, I am optimistic about the potential. With a debt-free, cash-rich balance sheet, it has the financial flexibility to acquire more businesses and expand its footprint. There is also the potential for additional shareholder returns as profits expand and cash flow grows. At the time of writing, the stock offers a dividend yield of 2.8%. 

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With that in mind, one penny stock I believe could be a good buy for my portfolio in 2022 and beyond is Foxtons Group (LSE:FOXT). Here’s why.

Meteoric rise

Foxtons is an estate agency originally founded in 1981 in Notting Hill, London. It has grown to be London’s leading estate agency with multiple branches throughout the city and it’s website receives approximately 10m visits a year.

Penny stocks trade for less than £1. As I write, Foxtons shares are trading for 40p. A year ago, the shares were trading for 48p, which is a drop of 16% across a 12-month period. It is also worth noting that the Foxtons share price has returned to its pre-pandemic level, which was 90p just before the market crash in 2020.

Why I like Foxtons

Firstly, Foxtons has a strong competitive advantage due its profile and brand recognition. The London property market is very saturated so establishing itself as the leading estate agent in the city is a remarkable achievement in my eyes. It also continues to grow and open new branches throughout the city to capitalise on the current booming market.

Right now, the housing market is booming and Foxtons is benefiting. The government’s stamp duty holiday aided this boost. Foxtons is also shrewd as it understands that buying and selling houses can be profitable, but it is also cyclical. The boom may not last for long or may disappear and re-emerge. To combat this, it also has a burgeoning lettings division. Buying property in London is tough due to high prices, therefore lettings are on the rise. Foxtons can take a slice of rent from lettings properties it manages, which is a guaranteed form of revenue.

Foxtons also recently completed an acquisition of smaller competitor, Douglas and Gordon. This will also help boost its revenue. I like when a company acquires a competitor to enhance their profile and offering. This is a statement of intent when it comes to boosting growth and performance, especially for a penny stock with less financial clout.

Speaking of performance, at the end of October, Foxtons released an update for the nine months ended 30 September. These results were positive. Group revenue increased 50% compared to 2020 levels and 24% compared to 2019 pre-pandemic levels, which is impressive. Each of its segments — lettings, sales, and mortgage brokering services — saw increased performance compared to 2020 and 2019 levels.

Penny stocks have risks too

Foxtons is still a relatively small business and the property market is a huge machine with many cogs. A larger competitor with more financial muscle could eat away at its market share if it wanted to do so. Furthermore, the housing market is cyclical as mentioned. Any downturn or negative news could affect performance.

Overall I feel Foxtons would be a good addition to my portfolio in 2022 and I would add the shares to my portfolio at current levels. It possesses a good competitive advantage, has made the most of the recent boom, and is taking steps to grow even more. I would buy the shares and hold them for a long time.

The post Here’s 1 penny stock to buy in 2022 and hold! appeared first on The Motley Fool UK.