I am often on the lookout for the best penny stocks for my portfolio. These up-and-comers can offer some excellent growth prospects in the long term. There are some investors out there that avoid them due to significant risks and challenges, which is completely understandable.
FTSE AIM opportunity
Seeing Machines (LSE:SEE) is an Australia-based and headquartered technology business. It specialises in artificial intelligence (AI) technology to reduce transport related accidents with real world applications.
This safety technology is applied in automotive, rail, aviation and off road (mining) sectors. Seeing Machines is a growing firm and already has a footprint in Europe, North America, South America, the Middle East, and Asia. Some of its major clientele are big businesses. These include General Motors, Emirates Airlines, and Transport for London.
I am a fan of tech stocks generally and penny stocks in the technology sector excite me, especially when they are creating solutions to everyday problems. Seeing Machines is doing just that in my opinion with its mandate to reduce risk of accidents through tech.
As I write, shares are trading for just 10p per share. This time last year shares were trading for just 3p per share. In the space of a year the share price has more than tripled. I believe it could be a good, cheap opportunity for my portfolio right now.
Seeing Machines released a FY21 trading update at the beginning of August. The bullish report caused a 25% hike in its share price.
SEE reported revenues were expected to be A$47.3m which is an 18% increase on the same period last year. In addition to this, cash at 30 June is approximately 24% ahead of market consensus at A$47.7m.
Seeing Machines said royalty revenues from its automotive divisions had begun to come in. This was due to more than 100,000 vehicles leaving showrooms equipped with its driver monitoring system (DMS). It also said its automotive pipeline could deliver potential revenue of over A$900m with increased driver safety regulations to be introduced worldwide.
Penny stocks are also susceptible to being taken over by bigger firms. Automotive tech firm Veoneer, which operates in a similar space to Seeing Machines, was the subject of a $4.6bn takeover bid from US chipmaker Qualcomm. I believe this means that a firm like Seeing Machines could be taken over for a hefty sum in the future too.
Penny stocks are very risky
I do think Seeing Machines has excellent growth potential. It already has some excellent clients on its books and has some cash in the bank which is important for smaller firms.
The risks I must consider are that SEE is a very small fish in a large pond, which means it could be out muscled financially by larger firms. Penny stocks’ share prices are also very volatile and SEE could see its share price fall as it is trading at all-time highs. This could happen if there were a lack of new business wins or if there were a slowdown in economic growth.
Despite the risks, I would be willing to invest in Seeing Machines shares just now for my portfolio. I am aware of the risks but also aware of the potential upside involved. I would be happy to invest a small sum and keep an eye on developments.
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Jabran Khan has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Seeing Machines Ltd. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.