Penny stocks don’t usually start out life that way. No, companies tend to pitch their shares a good bit higher when they first come to market.
And things need to go wrong to push prices down below 100p. For many years, down there is where a lot of investors have looked for recovery bargains.
I’m wondering if Allergy Therapeutics (LSE: AGY) might be one of them. A company that’s down on its luck needs to avoid going bust if it has any chance of making me a profit, of course.
And that’s probably the biggest risk with penny share diving. That appears to have been avoided though, with Allergy shares nearly trebling over the past two years.
The price is now up above 30p, but it’s been down at 7.25p. Is it good value now? A June trading update spoke of operating profit being “strong and expected to be well ahead of market expectations.” It also reports a healthy year-end cash position so, hopefully, there are no liquidity worries.
I’ll need to see the actual figures, and thankfully we should have them on 4 September when Allergy Therapeutics releases full-year results.
The allergy immunotherapy business must surely have great potential. Whether this is the company to achieve it, I don’t know. But we could have a better idea shortly.
Pandemic plus Brexit
Staffline (LSE: STAF) is a very different company, but it’s in a similar situation. The recruitment firm was hit hard by the pandemic, and was soon languishing amid the sub-20p penny stocks. Since then, we’ve seen a similar recovery to Allergy Therapeutics, and the shares are back above 80p.
First-half results are due on 14 September, and a July update suggested they should be positive. The company reckoned its trading had “continued to be strong across the first six months of the year to 30 June 2021,” ahead of expectations.
I think we’ll need to get to the end of the year before we have any meaningful profit comparatives, but I found one thing pleasing.
Staffline shouldered net debt of £36.2m at the halfway stage in 2020, but that’s been converted to £20.9m net cash this time. I think Staffline is a solid long-term business. But in the medium term, the UK is facing a post-Brexit worker shortage, which won’t help. I’ll keep watching.
Cheapest penny stock
We’re not short of options when it comes to penny stocks, and my third possibility is the most lowly priced. It’s Pan African Resources (LSE: PAF), whose shares are down at around 15p. The price has been very erratic over the years mind, dipping to 6.5p as recently as 2018.
The journey back to the current price hasn’t been all positive, with the price having reached above 27p earlier in 2021. So what we’re looking at here is a relatively small gold miner, with a market-cap of £300m.
And it’s a very erratic share price. The gold price weakness of the past few months hasn’t helped, and Pan African shares have largely followed it down.
So what now? First-half results are due on 15 September, and I’ll want to take a close look at those. In particular, I want to see how the firm’s cost of production compares to others in the same business.
Are you on the lookout for UK growth stocks?
While it’s available: you’ll discover what we think is a top growth stock for the decade ahead.
And the performance of this company really is stunning.
In 2019, it returned £150million to shareholders through buybacks and dividends.
We believe its financial position is about as solid as anything we’ve seen.
- Since 2016, annual revenues increased 31%
- In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
- Operating cash flow is up 47%. (Even its operating margins are rising every year!)
Quite simply, we believe it’s a fantastic Foolish growth pick.
What’s more, it deserves your attention today.
So please don’t wait another moment.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.