£1,000 buys 1,869 shares in this red-hot penny stock that’s tipped to rise 64% and has a 6% yield

Penny stocks are high-risk, volatile investments. So they’re not well suited to those seeking portfolio stability.

If an investor’s comfortable with share price volatility however, they can be worth considering as in this area of the market there’s scope for explosive gains. With that in mind, here’s a penny stock that looks interesting to me right now.

An innovative UK company with an unbelievable customer list

The stock I want to highlight is Oxford Metrics (LSE: OMG). It’s a tiny British company that specialises in smart sensors and related software for motion measurement and smart manufacturing.

Founded in 1984, it has over 10,000 customers across 70 countries today. Its customer list is impressive and includes the likes of Boeing, Airbus, Ford, BMW, Jaguar Land Rover, and Johnson & Johnson.

At present, the stock trades for 53.5p. That means that £1,000 buys around 1,869 shares. Surprisingly, there’s a dividend yield of around 6% on offer. That kind of yield’s pretty rare for a penny stock – most pay small/zero dividends.

Lots going for it

Looking beyond the yield, this stock looks interesting to me for a few reasons. For a start, the company looks well placed to benefit from the manufacturing automation trend.

The way I see it, the company’s Smart Manufacturing division – which serves blue-chip manufacturers in the automotive, aerospace, medical, and electronics sectors and contributed 29% of group revenue last financial year – has significant growth potential.

Note that in the company’s full-year results for the year ended 30 September, it said: “With a healthy pipeline and growing demand for high-precision, AI-enabled quality control, Smart Manufacturing is well placed to contribute more meaningfully to the group’s future growth”.

Secondly, the financials look pretty solid. This financial year, revenue’s expected to climb 10% to £49.1m. Meanwhile, earnings per share are forecast to be 2.6p, up from 1.55p last financial year. This is just a forecast, of course, but that represents growth of 68%.

Third, the share price trend is up at the moment. The stock did pull back recently when it went ex-dividend (meaning that anyone buying now isn’t entitled to the next payout in March) but that’s very normal.

Finally, the valuation seems very reasonable relative to the revenue and earnings growth. Currently, the forward-looking price-to-earnings (P/E) ratio is 21.

It’s worth noting that the average analyst price target is 87.5p. That’s roughly 64% above the current share price.

An investment opportunity?

Of course, while this all sounds positive, we need to remember that this is a penny stock, so it’s high-risk. Some risks include weakness in its Motion Capture segment (where business has been a little soft recently), botched acquisitions, and competition from rivals.

Overall though, I see a lot of potential. I believe the stock’s worthy of further research.

The post £1,000 buys 1,869 shares in this red-hot penny stock that’s tipped to rise 64% and has a 6% yield appeared first on The Motley Fool UK.

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Edward Sheldon has no positions in any 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.

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