Such high-growth investment opportunities come with considerable risks. That said, I can stomach greater volatility if the risk/reward profile is sufficiently attractive.

One penny stock that caught my eye is AIM-listed legal and professional services group RBG Holdings (LSE:RBGP). Here’s my take on the outlook for the business.

Legal industry exposure

RBG Holdings is a unique company. In fact, it’s more accurate to describe it as a group of three distinct companies, namely law firms Rosenblatt and Memery Crystal as well as specialist M&A boutique Convex Capital Limited.

Currently, it also owns LionFish, a litigation finance business. However, the group intends to dispose of this arm after writing off £4m last year in the wake of losing two cases it invested in with no prospect of further appeals.

It’s rare to see legal services companies quoted on the UK stock market. That’s because the vast majority of firms in this lucrative sector aren’t technically companies. Instead, they’re limited liability partnerships (LLPs), owned by lawyers as business partners rather than outside investors.

British law firms have only been able to attract external investment from stock market flotations since 2010. And just a handful have done so since Gateley Holdings made the inaugural move in 2015.

Promising financial results

Sometimes, taking the road less travelled can yield rewards. Although RBG Holdings’ litigation funding subsidiary flopped, the other ventures have proved much more successful.

Since its 2018 IPO, revenue has more than trebled and EBITDA has doubled. For the last financial year, revenue rose 26% to hit £54.1m, adjusted EBITDA increased 54% to £15.8m, and adjusted pre-tax profit soared 66% to £10.9m.

These are impressive numbers, yet the shares have slumped in recent months following news of LionFish’s difficulties. If the group can successfully address its ongoing exposure to this business, I think there’s plenty of room for share price growth from today’s levels.

Crucially, the company is well diversified. Rosenblatt has a solid reputation in dispute resolution. Memery Crystal’s strengths in corporate law and real estate complement this nicely.

The performance of these separate areas of legal practice fluctuate at different times, depending on the stage of the macroeconomic cycle we’re in.

In addition, the company states that Convex Capital Limited has “a strong pipeline of deals which remain in process”.

Why I’d buy this stock

I have some concerns about investing in RBG Holdings. In light of listed law firms’ recent entry into the public markets, uncertainties exist regarding how they should be valued.

Plus, the company could struggle to attract the top legal talent with no route to partnership on offer unlike most of its competitors.

However, this is a business exhibiting commendable financial strength with a downtrodden share price. That’s a dream combination for a bargain-hunting investor like me.

Overall, I think there’s a growth story in the making here. If I had spare cash, I’d buy this penny stock today.

The post 1 penny stock under 52p that I’d buy today appeared first on The Motley Fool UK.

I believe I’ve found a great option in RBG Holdings (LSE:RBGP). It owns the leading UK law firm Rosenblatt, which deals with white collar crime, financial fraud cases, and dispute resolution.

Its £57m market-cap is at the lower end that I’d be happy to buy for my Stocks and Shares ISA. It’s not listed on the FTSE 100 or FTSE 250. Instead it’s listed on AIM, the growth-focused section of London’s flagship stock market.

A lot to like

So why have I got my eye on this share for my Stocks and Shares ISA? Rosenblatt employees own more than 20% of its shares, which makes for a strong internal incentive to build shareholder value. CEO Nicola Foulston says this is a key part of her strategy to motivate her people.

I particularly like RBGP’s very strong balance sheet. Crucially, it has no debt so it can spend its operating capital on growing the business and not on servicing loans. It also has a handy cash pile of £2m with £42m of assets. Also, profits are up 27% and the company reported a strong set of figures in April covering the period to the end of December 2019.

Then there’s that 7.5% dividend yield. That would compound very nicely in my Stocks and Shares ISA. As good investors, we can build up our ISAs towards the magic £1m number by picking high-yield dividend stocks. It’s certainly a lot easier to gain compound interest with a portfolio paying 7.5% than, say, 2.5%.

Investing post-Covid

I also think the future is bright for RBGP, while the UK economy faces dark days ahead. I think there’s going to be no shortage of work for this professional services law firm.

One high-profile case Rosenblatt worked on recently was for FTSE 250 firm Stobart, the owner of Southend Airport, in a bitter boardroom battle that saw the chief executive of the business sacked, to significant shareholder dismay.

And the number of dispute resolution cases like this, in which Rosenblatt specialises, will only grow as distressed business numbers grow.  

Stark analysis revealed in May 2020 by trade body the Corporate Finance Network, found that 61% of 16,000 SMEs had applied for the UK government’s Covid Business Interruption Loan Scheme. Only 9% had been accepted. Just a tiny percentage said they would be able to meet their tax liabilities in six months’ time. To that point, I’ve also invested recently in insolvency and turnaround companies like Begbies Traynor, Manolete Partners and FRP Advisory.

Undervalued

I think RBGP’s significantly undervalued at the moment. If you had bought shares in 2018, when the company made £3m pre-tax profit on £12.5m revenue, you’d have paid a high price of 18 times earnings. This year, the P/E ratio is significantly reduced: to 9.5 times earnings. In that time Rosenblatt has vastly improved its pre-tax profit, to £7.65m, and grown its revenue to £19.5m.

Rising earnings and profits? Check. High yield dividend? Check. Low price tag for the shares? Check. I’d definitely buy this for my Stocks and Shares ISA.

The post I’d buy this 7.5% yield for my Stocks and Shares ISA today appeared first on The Motley Fool UK.