I’m considering 2 explosive UK penny stocks while they’re still cheap!
Due to their smaller market caps, penny stocks tend to be less predictable than larger FTSE 100 names. Many are unprofitable with little-to-no cash flow, so they rely on financing or share issuance to keep going.
Plus, their share prices can swing wildly on a single contract win, drilling result or regulatory headline. That extra volatility can deliver eyeâcatching returns when things go right. But only a small minority ever make it to stable cash flow status.
So when shopping for penny stocks, I take an extra cautious approach. Recently, I’ve uncovered two up-and-coming UK companies that show a lot of promise: Made Tech (LSE: MTEC) and Arrow Exploration (LSE: AXL).
The government contractor
Made Tech specialises in digital, data and technology services for the UK public sector, helping departments modernise legacy systems and move services online. This is a structural trend the government has repeatedly signalled it wants to push further.
That focus on government work, including justice and health contracts, gives it a defensible niche, and recent results show revenue growth alongside improving profitability as the broader publicâsector digital market recovers from a slower 2024 procurement environment.
Management has already signalled that 2026 trading should be significantly ahead of expectations. Revenue is already up 27.5% year on year and it has a 12.7% return on equity (ROE). Whatâs more, the share price rose 45.8% over the past 12 months â unusually strong for a penny stock.
But while the government link may be beneficial, it also means the company is tied to budgets and procurement cycles. Any change in political priorities or cancelled contracts could hit profits hard. Still, when it comes to considering top-performing penny stocks, itâd be hard to find one doing better than Made Tech.
Promising prospects
Arrow Exploration is a dualâlisted Canadian oil and gas prospector. Aside from Canada, it has assets in Colombia, where itâs been ramping up output at fields such as Carrizales Norte and new wells like Mateguafa 10.
The shares are up roughly 180% since listing, while earnings have swung from a 2023 loss of £885,240 to around £10m profit in 2024.
Recent estimates put total production at around 4,900 barrels of oil equivalent per day and audits show strong revenue and cash-flow growth as new wells come onstream. Thatâs impressive for a small producer, reinforcing the growth story.
But volatile oil prices add risk, along with the political and regulatory environment in Colombia. Brent crude is up now but could dip again, and any change to local tax or licensing laws could cause problems.
As always with oil stocks, itâs risky â but the returns could be spectacular if it strikes (black) gold.
The bottom line
As part of a highly-diversified portfolio, both these names sit firmly in the ârisky, small allocationâ bucket. Both are laying the groundwork for long-term, meaningful cash generation, but their share prices will almost certainly wobble more than mainstream FTSE payers.
Made Tech benefits from a governmentâdigitalisation niche and growing returns, while Arrowâs rising production and healthy margins could translate into lucrative dividends down the line.
For investors hunting the next ten-bagger opportunity, I think these two are well worth considering. But only as a small part of a much larger portfolio full of steadier income and defensive shares. For that, check out some of the top FTSE 100 stocks Iâve covered lately.
The post Iâm considering 2 explosive UK penny stocks while theyâre still cheap! appeared first on The Motley Fool UK.
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Mark Hartley 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.
