Penny stocks have a reputation for being very risky investments. While some companies go on to thrive (like ASOS), many others go nowhere. Some go bust.
This isn’t to say there aren’t a few winners out there, particularly after the year we’ve had on the markets. Here are three one-time penny stocks now requiring me to dig a bit deeper in my pockets.
Trading “materially ahead”
Market minnow Epwin (LSE: EPWN) manufacturers extrusions, moldings and fabricated low-maintenance building products. That may sound deadly dull, but I don’t think those buying the stock a year ago will be complaining. The share price has climbed nearly 70% since then.
Back in July’s trading update, the company said revenue over the first half of 2021 had been 69% up on 2020. That’s not altogether surprising considering how bad things were last year. However, the £157.8m logged was also 13% ahead of 2019’s figure. Accordingly, management now expects full-year adjusted pre-tax profit to be “materially ahead” of previous expectations.
However, there are still risks ahead. Supply chain issues and inflation are impacting a lot of businesses right now and Epwin’s no exception. So far, it’s been able to navigate these headwinds, but things could get worse before they get better.
Then again, the shares are still trading at a reasonable valuation price of 17 times forecast earnings for me to consider buying now. A 2.9% dividend yield easily covered by profit is another positive for me.
SigmaRoc (LSE: SRC) is another former penny stock whose shares are now trading (just) over a pound. Like Epwin, the construction materials company has clearly benefited from the revival in property over the last year. Its share price is up almost 140% since August 2020.
Bar a prolonged market stumble, I can see this momentum continuing. Back in May, the company announced that trading had been “ahead of internal expectations“, thanks to strong private-sector demand and some large-scale infrastructure projects commencing. Since management will always be closer to the business than analysts, I take this as a buy indicator when looking for stocks for my own portfolio.
SigmaRoc has also been on an acquisition spree, buying three businesses in Belgium. More recently, it’s announced a reverse takeover of limestone developer Nordkalk for approximately €470 million.
Half-year numbers are due on 6 September. In the meantime, the shares trade on a valuation of 19 times forecast earnings. One potential downside however, is the lack of dividends.
Former penny stock
A final former penny stock worth mentioning is Sirius Real Estate (LSE: SRE). The company is a leading owner and operator of offices, business parks and industrial complexes in Germany. The FTSE 250 member has also proven itself to be a great investment. The shares are up 63% over the last year.
Of all three one-time penny stocks mentioned, SRE is probably the one I’d prioritise buying due to its arguably more diversified earnings stream. That said, it’s also the most richly valued, potentially making it riskier. A valuation of 24 times forecast earnings suggests quite a lot of good news might be priced in.
Having said this, I do wonder if there could be more upside ahead as people gradually return to their offices. Sirius seems confident, having recently snapped up four business park assets and one land parcel for around €85m. The shares also yield 2.9% this year, according to analyst projections.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS. 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.