Let’s see what it spat out…

Houston, we have confusion

ChatGPT Plus is comfortable rattling off blue-chip stocks like Rolls-Royce and Nvidia to consider. My theory is that it just goes by the largest listed companies whose share prices have been performing strongly and names them.

But it seemed to have a problem coming up with UK penny stocks. Two it named weren’t even penny shares at all, based on the widely-used definition of a market cap beneath £100m and share price below £1.

The first was Foresight Group Holdings, an investment manager with a £433m market cap and £3.75 share price. Moreover, this firm is a member of the mid-cap FTSE 250 index!

Granted, the London Stock Exchange is struggling with delistings and attracting new IPOs. But if the FTSE 250 had to start including sub-£100m market cap penny stocks to make up the numbers, then times really would be hard.

The bot’s second pick was less off-mark, as it went with Secure Trust Bank. However, while the market cap is £84m, this bank’s share price is even higher (£4.45).

The AI assistant had a bit of an amusing meltdown when I pointed this out, finally stating that my set task “can be challenging, as these parameters often result in a limited selection“. Of course, this is nonsense, as the UK market contains loads of penny stocks.

Finally, a stock

Anyway, with a bit of cajoling with the prompts, I finally got it to name me one a bit closer to what I was asking for. It went with Renold (LSE: RNO).

Now, the market cap here is above the technical threshold at £114m, but I didn’t want to quibble any more.

Renold is a manufacturer of industrial chains, gearboxes, and related power transmission products. According to ChatGPT, the firm’s “global presence, innovative product offerings, and strategic acquisitions position it well to capitalise on trends such as onshoring, re-industrialisation, automation, and defence“. Sounds good to me.

Renold stock is up 247% in five years, yet still trades very cheaply. The forward price-to-earnings multiple for FY26 (starting in April) is just 5.7.

It also points out that analysts have set a median 12-month price target of 88p, suggesting potential gains of 75% from its current 50p. Well-spotted, though I’d add that price targets often don’t come to much.

One thing it fails to mention is that the company has quite a bit of debt on the balance sheet (around £42m net debt). So this adds a bit of risk here.

ChatGPT ends with: “Investors seeking exposure to a resilient UK industrial firm with growth potential may find Renold an attractive consideration.”

I’d second that. In fact, I wrote in July that Renold was a “small-cap stock is worth considering” as its “profit margins are expanding“. Earnings per share are expected to rise around 39% next year.

I agree with the bot. I think Renold is a very cheap small cap worth considering and have put it on my watchlist.

The post I asked ChatGPT for the best UK penny stocks to buy and it said this… appeared first on The Motley Fool UK.

Renold

Renold (LSE:RNO) manufactures chains, gears and couplings for a variety of industries. They carry ore out of mines, make conveyor belts move, and drive the wheels on subway trains, among other things.

Today, the firm’s shares look cheap, trading on a forward price-to-earnings (P/E) ratio of 7.7 times. This in part reflects uncertainty in key sectors such as manufacturing, construction and mining.

Yet Renold’s ongoing resilience suggests this low valuation may be unjustified. Revenues at constant currencies rose 0.6% in the six months to September, while order intake rose 11.5% year on year.

This is impressive, as is the firm’s ongoing work to boost margins. Efficiency measures helped push adjusted operating profit 4% higher in the first half.

Renold does have £42.2m of net debt that investors should bear in mind. Still, the company’s recent decision to reinstate dividends is a good sign that this is manageable.

Character Group

Character Group‘s (LSE:CCT) a rare commodity in the realm of small-cap stocks. This is because most smaller growth shares reinvest any spare cash they have as they chase future profits.

However, Character has a decent history of returning money to its shareholders with dividends. It’s a record City analysts expect to continue, so the forward dividend yield here’s an impressive 6.8%.

The business manufactures a wide range of toys and games. So unfortunately this leaves it at the mercy of interest rate movements in the coming year and their impact on consumer spending. Latest financials showed sales fall fractionally in the six months to February, to £54.6m, as consumer spending remained under pressure.

But with inflation moderating and the Bank of England signalling more rate cuts, revenues could rebound. And this could reinvigorate its share price following recent pressure.

A modest forward P/E ratio of 9.8 times leaves scope for a price rebound too.

Ramsdens Holdings

Pawnbroker Ramsdens Holdings (LSE:RFX) is another low-cost, dividend-paying small-cap share I believe’s worth considering today.

It trades on a forward P/E ratio of 9.3 times. Meanwhile, its corresponding dividend yield’s 4.8%.

To put that — along with Character Group’s yield — into context, the average dividend yield for FTSE 100 shares is way back at 3.6%.

Pawnbroking companies are thriving in this tough economic climate. Ramsdens, for instance, is expected to have generated record profits in the last financial year (to September). With the cost-of-living crisis persisting, City brokers expect new all-time highs to be reached this year too, as people rush to raise cash.

Ramsdens’ bottom line should also benefit from ongoing estate expansion. Today, it operates 169 stores, up from 161 a year ago.

Earnings will suffer if gold prices continue their recent descent. But on balance, I think this small-cap star looks in great shape.

The post 3 mega-cheap small-cap stocks to consider in December! appeared first on The Motley Fool UK.

Here, I’m going to highlight three UK small-caps that I reckon are in bargain basement territory at present. I think these shares are worth considering today as the value on offer could quickly disappear if investor sentiment picks up.

A P/E ratio of 7.4

First up we have Renold (LSE: RNO). It’s an international supplier of industrial chains and related power transmission products.

This stock looks very undervalued to me. Currently, it trades on a forward-looking price-to-earnings (P/E) ratio of just 7.4.

Given that this company generates a large chunk of its revenues from the US (where construction activity is likely to be buoyant in the years ahead due to government spending on infrastructure) and that it has a strong order book, I reckon that earnings multiple is too low.

Now, it’s worth pointing out that Renold has a bit of debt on its balance sheet. This is a risk.

At the current valuation, however, I like risk/reward skew. It’s worth noting that the company just resumed paying dividends, which suggests that management is confident about the future and not so worried about the debt.

Growth at an attractive price

Next we have Team17 (LSE: TM17). It’s a British video game and educational app developer.

Currently, the P/E ratio here is about 12. I think that’s great value.

This is a company with an excellent growth track record. Over the last five years, its revenues have climbed by a whopping 270% to £159m.

Meanwhile, management is optimistic about the future. “Looking ahead, there is significant growth potential in our core markets,” said CEO Steve Bell in the company’s recent H1 results.

Of course, video gaming is a dynamic market and there’s no guarantee that Team17 will continue to have success with its games (which include Monster Sanctuary, Worms, and Overcooked: All You Can Eat).

Again though, at the current valuation, I think the risk/reward proposition here is attractive.

Significant long-term potential

Finally, check out Volex (LSE: VLX). It’s a manufacturer of critical power and data transmission products.

I hold this stock myself and one reason for this is that I reckon it’s undervalued. Currently, the P/E ratio here is just 12.9.

Given that Volex makes products for the fast-growing electric vehicle (EV) and data centre markets, and is enjoying strong growth itself (helped by key acquisitions), I reckon that multiple is on the low side.

It’s worth noting that the company recently advised that it’s performing well. In the first quarter of its financial year that ends on 31 March 2025, it registered year-on-year constant currency organic revenue growth of 9%, driven by “particularly strong performances” in the EV and data centre sectors.

Now, one issue with this company is that some of its markets can be a little cyclical at times. For example, last year, the EV market was quite weak.

Given this cyclicality, I think the key here is to take a long term view. Over the next decade, the EV and data centre markets are poised for significant growth, so Volex is well placed to do well.

The post 3 dirt cheap small-cap UK shares to consider buying this month appeared first on The Motley Fool UK.

Nevertheless, the international supplier of industrial chains and related power transmission products has done its shareholders proud over the past few years. But director-speak makes me believe there may be more to come.

A multi-bagging share price

In the 2020 pandemic sell-off, the share price plunged to around 6p. Today (17 July), it’s near 59p, and the company just crowned that spectacular progress with a bumper set of full-year results.

Although small-cap stocks can be risky, they can sometimes also deliver high rewards for investors.

However, it would have taken a stout heart to buy the stock in the wake of the pandemic when economies were crashing. I first became interested in November 2021 and typed a bullish article with the stock near 30p.

It’s done all right since then, but chief executive Robert Purcell said in today’s report the business is now at an “inflection point”.  The compounding effect of many recent exciting initiatives is “coming to fruition”.

It’s hard to argue with that assessment. In the 12 months to 31 March 2024, adjusted earnings rose 20% year on year. Net debt dropped by more than 16% too, suggesting a strong cash performance backing up the business progress.

To top-off the positive feel to the report, the directors initiated a small dividend for the year of 0.5p per share. That’s the first in around 19 years, and I think that tells us something about the business and the sector — things can be tough for both.

There’s no denying the cyclicality present here. Indeed, a lot of the strong gains enjoyed by shareholders since 2020 have come from the business turning itself around. Even now, a half-decent general economic down-turn could pull the rug from revenues, earnings, cash flows, dividends, and the share price. To flirt with this stock is to flirt with such ongoing risks.

Steady growth ahead?

But Purcell is optimistic about the company’s future. Continuous improvement initiatives are building an “ever-improving” platform to support the directors’ commercial initiatives.

The focus is on targeting and consolidating the “highly fragmented industrial chain market” with an acquisitive growth strategy. There’s a rich pipeline of “appropriately sized and relatively low-risk opportunities”, Purcell reckons.

Meanwhile, the directors expect the current trading year to be less challenging but they are remaining vigilant.

My assumption is this business is on a long-term growth trajectory now. But progress could be slower than we’ve seen recently. City analysts have pencilled in an increase in normalised earnings of about 13% for this year and 8% next.

However, those potential advances are short of the double- and triple-digit percentage gains seen lately.

Nevertheless, when set against those estimates, the forward-looking earnings multiple looks undemanding at around eight. On balance, and despite the risks, I think this stock is worth further research now with a view to considering the stock for a long-term investment.

The post Earnings up 20%! But this UK small-cap stock may just be getting started appeared first on The Motley Fool UK.

I reckon they’re worthy of attention for stock-pickers looking to add smaller growth companies to their ISA portfolios. Here’s why.

Renold

First up is Renold (LSE: RNO). The stock has more than doubled over the past year and is now priced at 59p, giving the firm a market cap of £134m.

Renold is a global supplier of industrial chains and power transmission products. Its chains are known for their reliability and are used in industries such as manufacturing, mining, and agriculture.

The company has also made bespoke chains for the Great Britain Cycling Team’s track cyclists since 2011 — a period of great success. Beyond chains, it manufactures gearboxes and couplings.

Results for the year ended 31 March 2024 were “materially ahead” of previous expectations (the full-year report is due on 17 July). Revenue was expected to increase just 0.9% year on year to £241.5m (at constant exchange rates), but adjusted operating profits were approximately 20% higher.

The group said its productivity and efficiency programmes were driving sustainable profit margin improvement. And at £83.6m, the order book was at near-record levels.

Meanwhile, it has made over 100 bespoke chains for the British Olympic and Paralympic teams in Paris this summer. And it recently won a contract from the Royal Canadian Navy worth £10.6m.

Now, one issue is that Renold has some debt on its balance sheet following acquisitions, which adds risk. But I’m encouraged to see that its net debt position had been reduced by £4.9m to £24.9m at the end of March.

Overall, this small-cap stock is worth considering, in my opinion. The forward price-to-earnings (P/E) ratio is just 8.8. That’s really low for a firm with great momentum and whose profit margins are expanding.

hVIVO

Next up we have hVIVO (LSE: HVO), which I hold shares in. At 28p, the stock is up around 84% over the past year, giving a market cap of £190m.

The company specialises in human challenge clinical trials. These are where healthy volunteers are exposed to pathogens (like viruses) in a controlled environment to test vaccine efficacy. It recruits these volunteers through its dedicated FluCamp service.

Running these trials is a lucrative little niche, as we can see by the firm’s 35% compound annual growth rate in revenue between 2018 and 2023. Net profit last year was £16.1m on revenue of £56m.

It has also just moved into a new, state-of-the-art facility in Canary Wharf. This houses the world’s largest human challenge trial unit and is expected to help hVIVO grow its annual revenue to £100m by 2028.

One risk here is that the company doesn’t have a long track record of profitability. A return to losses would hurt the stock quite badly, I fear.

Still, the firm remains confident in its prospects and has even started paying a dividend. And it’s just won its largest field study contract to date (for a phase 2b influenza drug candidate).

The future looks very bright. I’m considering buying more shares.

The post 2 profitable ex-penny shares to consider for an ISA appeared first on The Motley Fool UK.

Creo Medical Group

What it does: Creo Medical manufactures instruments used in minimally invasive endoscopic surgery.   

By Ben McPoland. I reckon Creo Medical (LSE: CREO) stock has the potential to rise much further. In 2023, the medical device company is expected to have grown its revenue 13% to around £31m.  

In 2024 though, its top line is forecast to accelerate to around £40.6m as more surgeons are trained to use its Speedboat product. This versatile electrosurgical device is saving certain NHS hospitals a fortune as part of their bowel cancer and endoscopy services.

According to the company, Speedboat technology has helped drive an 87% reduction in the average length of stay from 8.39 days to 1.07 days. Over a one‐year period, costs were reduced from £8,800 per patient to £3,600 (a 59% reduction). 

Now, one thing holding the stock back is a lack of profitability. Creo is still loss-making, which adds risk to the investment case here. However, it expects to reach cash flow break-even in 2025, with profits following after.

If it can achieve this while still growing revenue by double-digits, then I think the share price can explode higher from this point. That’s 34p, as I write. 

Ben McPoland owns shares of Creo Medical. 

Eagle Eye Solutions Group

What it does: This tech company specialises in personalised digital marketing, offering a third-party-integrated platform.

By Oliver Rodzianko. Eagle Eye Solutions Group (LSE:EYE) seems to be offering advanced and personalised marketing solutions at just the right time. With artificial intelligence (AI) now being adopted by the mainstream, the desire for unique promotions will become the new standard. Eagle Eye is one of the firms leading in providing this.

One element that stands out to me regarding its financials is that it holds no typical debt and has only a moderate amount of other liabilities like accounts it owes. That lays the foundation for a solid investment, in my opinion.

It’s worth bearing in mind that Eagle Eye faces competition from some leading companies like Salesforce Marketing Cloud, Adobe Experience Cloud, and Cheetah Digital. It’s going to have quite a challenge on its hands in remaining competitive in AI with the bigger players. Nonetheless, Eagle Eye has still bagged customers like Asda, Pret, and Halfords so far.

Oliver Rodzianko owns shares in Salesforce.

Hostelworld

What it does: Hostelworld is a booking platform that focuses on hostels, in a large variety of tourist destinations worldwide.

By Christopher Ruane. If you try and book a hostel in most of Europe for this Summer, you’ll notice a few things. Availability is often tight – and prices are typically much higher than they were a few years ago.

Travel demand remains high, which is good for accommodation booking platforms in general. But the comparatively low cost nature of many of the sleeping options listed by Hostelworld (LSE:HSW) could mean that bookings stay strong even if an economic downturn hurts the higher end of the industry.

Revenues are soaring: Last year they increased 33% and surpassed pre-pandemic levels.

The company is profitable again after a few years of heavy losses. Net debt fell sharply last year to €12.3m.

The business model is simple and the low marginal cost of expansion is attractive. The pandemic era showed that a sudden slump in demand can see revenues collapse. But Hostelworld has bounced back and I think looks set for ongoing growth.

Christopher Ruane does not own shares in Hostelworld.

Porvair

What it does: Porvair makes specialist filtration equipment for aerospace, life sciences, and metal melt applications.

By Stephen Wright. With a market cap of £282m, Porvair (LSE:PRV) is the smallest company I own in my portfolio. But I rate its growth prospects extremely highly.

The company has a couple of different sources of growth. The first involves making more money in its existing operations and the second is through acquisitions.

Porvair operates in industries where competition is limited – or sometimes non-existent. That gives the company an ability to raise prices incrementally. 

There are also opportunities for growth by acquiring other companies. This can be risky, but Porvair’s size means it should have plenty of opportunities.

The company’s end markets are also cyclical, which is another risk. Aerospace turned down during the pandemic and healthcare inventories have been at elevated levels since.

Despite this, I bought the stock recently because I think it’s well worth the 17 times earnings the stock trades at. And I plan to continue doing so in the future.

Stephen Wright owns shares in Porvair.

Renold 

What it does: Renold is an international supplier of industrial chains and related power transmission products.

By Edward Sheldon, CFA. Right now, there are lots of small-cap stocks with explosive growth potential. However, one I want to highlight is chain and gear manufacturer Renold (LSE: RNO).  

There are several reasons I’m bullish on this stock. One is that it looks very undervalued at present. Currently, Renold has a price-to-earnings (P/E) ratio of just six. Considering that the company has a near-record order book, and that profits for the year ended 31 March 2024 are expected to rise 27%, that valuation strikes me as way too low.

Another is that around 40% of the company’s revenues come from the US. Given that the construction industry in the US is booming right now due to infrastructure spending, I think there’s potential for future results to be better than expected. 

Now, it’s worth pointing out that Renold has some debt on its balance sheet. This is not ideal in a high-interest-rate environment. 

At the current share price and valuation, however, I think the risk/reward setup looks quite attractive. 

Edward Sheldon has no position in Renold 

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By investing in such businesses, investors have a chance to enjoy spectacular returns. This is because growth shares have the potential to deliver significant capital appreciation as their share prices boom in line with profits.

Adopting a growth investing strategy does have its dangers. Such stocks often have high price-to-earnings (P/E) ratios owing to their terrific profits potential. Yet these high valuations mean that even the slightest slice of negative information can prompt a severe share price fall.

Investors can eliminate this risk by buying stocks that trade on low earnings multiples. This limits the potential share price downside if news flow surrounding the company suddenly disappoints.

With this in mind, here are two dirt cheap growth stocks worth a close look today.

Going for gold

Gold miner Pan African Resources (LSE:PAF) has enjoyed stunning share price gains in 2024. This reflects a soaring yellow metal price, which last month hit a fresh record of $2,364 an ounce.

Yet on paper, this AIM business still offers stunning value. City analysts expect earnings to rise 10% this financial year (to June). This leaves it trading on a forward price-to-earnings (P/E) ratio of 6.8 times.

This projection also means Pan African trades on a price-to-earnings growth (PEG) ratio of 0.7. Any reading below 1 indicates a share’s undervalued.

This year’s bright forecasts reflect the current strength of gold prices. But the South African miner isn’t expected to be a flash in the pan. It’s expected to deliver strong and sustained growth.

Earnings here are tipped to soar 25% in financial 2025, and by another 22% the following year. These bright forecasts reflect Pan African’s plans to raise annual gold production by as much as 25% from current levels.

There’s no guarantee that metal prices will continue rising, of course. In fact, any decline could have significant impact on gold sector earnings.

Yet with inflationary pressures persisting, and fears over the economic and political landscape worsening, there’s good reason to expect gold prices to continue rising.

Off the chain

Industrial chain-maker Renold (LSE:RNO) is another AIM-listed share on a roll right now. Last month, it said trading for the year to March 2024 was “materially ahead” of expectations, news that sent its share price through the roof.

Renold makes products for the mining, manufacturing, energy and transportation sectors, among others. And City analysts are expecting profits to accelerate as the global economy improves.

Earnings growth of 8% and 12% are forecast for financial 2024 and 2025 respectively. The engineer has exceptional opportunities to increase profits beyond this period too, thanks to phenomena like increasing urbanisation, automation and food production, as well as the rise of renewable energy and e-commerce.

I don’t think these are reflected in Renold’s rock-bottom valuation. Today, it trades on a forward P/E ratio of 7.5 times.

The company’s debt is much higher than I’d like. But this is falling and came in at £24.9m as of March. On balance, I think this growth share’s worth a close look today.

The post 2 cheap growth stocks to consider in May appeared first on The Motley Fool UK.

For me, the key is to not treat them like get-rich-quick punts. Doing that, I think, is why so many folk lose money.

I look at them like any other stock, and only buy if I think they’re great companies I’d want to hold for 10 years.

Capital & Regional

Capital & Regional (LSE: CAL) only just squeaks in to the penny stock classification, with a market-cap of £99m. But at least the 56p share price is well with limit of under a pound.

It’s a real estate investment company that mostly has its cash in shopping centres, retail parks, and the family entertainment venue Xscape.

Real estate is out of fashion now, so it’s not a surprise to see the share price fall over the past five years. But it does look oversold to me.

With inflation, interest rates, and UK borrowing at sky-high levels, there’s clearly risk ahead for stocks like this.

But I see it as a nice recovery candidate, and it’s on a forecast dividend yield of 9% right now. H1 results on 10 August might make a difference.

Topps Tiles

Topps Tiles (LSE: TPT) shares two of the same things. It’s also only just under the £100m limit, with a £98m market-cap.

And it’s another penny stock with a good dividend, on a forecast yield of 7.6%. Don’t let anyone tell you we have to buy FTSE 100 mega-caps to get dividend income.

The share price has been up and down a bit, and has lost about 15% in five years. But the valuation looks good to me.

Forecasts show a price-to-earnings (P/E) ratio of 19 for this year, which I’d say seems a bit high. But a couple of years of forecast earnings growth would drop that to just a bit over eight by 2025. And that sounds a lot better to me.

The firm does tiles and flooring, so it must share some property sector risks. But I like the look of it.

Renold

My final pick, Renold (LSE: RNO), doesn’t pay a dividend, but it is on a very low forecast P/E of just 5.5.

The share price is down a few percent in five years. But since a low in 2020, it’s more than trebled.

Renold makes machine parts, like chains and gears that go into making conveyors. It sells to all sorts of sectors, including construction and mining, around the globe.

So it faces commodities and infrastructure risk, while things look a bit tight for those industries. But at least there’s diversity there.

I like the ‘picks and shovels’ nature of Renold. And it’s quite literal here too, as it makes things for digging.

Net net debt of £30m might be a bit of a concern for a firm with a market-cap of £67m. I’ll keep an eye on that.

But all three of these are on my list of buy candidates for next time I have cash to invest.

The post 3 cheap penny stocks I’d buy and hold for 10 years appeared first on The Motley Fool UK.

Yet snapping up these small-cap shares can also yield spectacular results far ahead of the market average. With this in mind, here are three I’ll be looking to buy when I have spare cash to invest.

Shanta Gold

Signs of ‘sticky’ inflation across the globe means that getting exposure to gold could be a good idea. As the value of paper money erodes, investor demand for ‘hard currencies’ like bullion picks up.

I’d buy Shanta Gold (LSE:SHG) to capitalise on this supportive environment. It owns the Singida yellow metal mine in Tanzania, an asset where production is beating forecasts following a recent ramping up. It also operates a string of exploration assets, including in West Kenya, where drilling results have been especially impressive.

Mining is complex and expensive business. And operational problems can have a significant impact on shareholder returns. But the impressive momentum at Shanta suggests it might be a great stock to own.

Kodal Minerals

Buying lithium stocks also offers exceptional long-term investing potential. Rocketing electric vehicle sales mean that demand for key battery materials are also rising strongly.

I like the look of penny stock Kodal Minerals (LSE:KOD) today. It owns the Bougouni mine in Mali which, when up and running, could produce 220,000 tonnes of the lithium-rich mineral spodumene each year.

Early-stage miners can be especially risky because of their weaker balance sheets. But Kodal looks safer than many other London-listed commodities plays. In January it obtained significant funding from China’s Hainan Mining this year that it said provides full financing for the development and start of production at Bougouni.

Renold

One good way to ride the new commodity supercycle might be to buy so-called pick and shovel stocks. These are the companies that provide the goods and services that let miners (or indeed any business) do their thing.

Industrial component maker Renold (LSE:RNO) is one such share on my radar today. It makes chains, gears and couplings that are used on the conveyor belts and buckets that let miners pull minerals from the ground.

Pick and shovel stocks offer a huge advantage to risk-averse investors. Even if a mining stock encounters operational problems, they will still need the products that the likes of Renold supply. This tends to give the latter a solid stream of revenues.

That’s not to say that this penny stock is immune to trouble, of course. If a wider industry downturn happens and miner profits sink then demand for its chains and other hardware might fall.

But, encouragingly, the business sells its products to a wide range of sectors. These include agriculture, transport, energy, utilities as well as mining. So its reliance on strong conditions in any one sector is reduced, cutting risk.

The post 3 top penny stocks I’m looking to buy in June! appeared first on The Motley Fool UK.

Having said that, these shares can potentially deliver large financial returns, so they can play a role within a well-diversified portfolio. With that in mind, here’s a look at two that I believe are worth a closer look right now.

Increasing its market share

First up is Topps Tiles (LSE: TPT). It’s the UK’s largest tile retailer with more than 300 stores nationwide. Its shares cost around 48p a pop, at present.

There are a number of reasons I think this stock is worth a closer look today.

One is that the company – which is already the market leader in tiles in the UK with a strong brand – is looking to increase its market share in the years ahead. By 2025, it’s aiming to capture £1 for every £5 spent on tiles in Britain, thereby increasing its market share to 20% from around 17% today. It’s worth noting here that the company said in January that it’s ahead of schedule in terms of this goal.

Another is I believe the slowdown in the UK property market we are witnessing right now could provide tailwinds for Topps. With fewer people moving now that interest rates are higher, we may see more people decide to renovate their existing homes and splash out on new tiles.

Finally, the valuation here is quite low. Currently, Topps has a forward-looking price-to-earnings (P/E) ratio of about 11. At that multiple, I see potential for share price appreciation.

Now, economic conditions are a risk here. If the cost-of-living crisis in the UK gets worse, Topps could be impacted negatively.

Overall however, I like the risk/reward skew at present.

Tailwinds from US onshoring

The other penny share I want to highlight today is Renold (LSE: RNO). It’s a leading international supplier of industrial chains and related power transmission products. Its shares cost about 26p each.

A trading update from Renold last month showed that the company has momentum at present. In the report, the company said it had “traded strongly” since its interim results in November, and that it expected operating profit for the full year (ending 31 March) to be above market forecasts.

It noted that its order book stood at £104.1m (a record high for the group) at the end of January, providing good visibility beyond the financial year end.

One thing Renold has going for it right now is that it generates around 40% of its revenues from the US. And the US is embarking on a massive ‘onshoring’ programme to eliminate supply chain vulnerabilities. This could provide big tailwinds for the group in the years ahead.

A risk to consider here is debt on the balance sheet. At 30 September 2022, net debt was £34m. This could present challenges now that interest rates are higher. Another risk is a weak macro environment.

I think these risks are largely priced into the stock however. Currently, Renold trades on a P/E ratio of less than six. At that valuation, I see the potential for share price gains.

The post 2 penny shares that are worth a look right now appeared first on The Motley Fool UK.