Up 25% YTD! Is this red-hot penny stock still ‘cheap’?
Market volatility has ramped up in recent weeks and weâve seen many penny stocks take a hit. Thereâs one name that has caught my eye as itâs surged 25% higher since the start of the year.
Pharos Energy (LSE: PHAR) shares are on the charge at the moment. I wanted to know if thereâs more to this little-known energy stock with a £106m market cap than meets the eye.
Red-hot penny stock
The company is a small oil and gas producer with assets in Vietnam and Egypt, where its strategy is largely focused on squeezing more value from existing fields.
In a market that can swing hard on oil prices and headlines, its fortunes tend to move with both operational updates and the wider energy landscape.
The companyâs share price has rocketed 25% higher in 2026 to 25.4p as I write on 23 March despite an 8% drop on Monday morning.
Whatâs happening in the energy sector?
The Iran war has disrupted global energy supply lines, with repeated warnings about the ongoing impact around the situation in the Strait of Hormuz.
The International Energy Agency has even called the conflict the greatest ever threat to global energy “in history”. Many analysts are tipping even higher crude oil prices, while oil and gas stocks like BP have hit all-time highs.
The companyâs producing assets are in Vietnam and Egypt, so itâs not drilling in the Gulf. But higher realised prices can still mean stronger cash flows, which can swing a penny stock like Pharos quickly.
More than meets the eye?
That brings me to the company itself, which matters once the current headlines fade away.
In December, Pharos said it was running a fully funded six well infill and appraisal drilling programme in Vietnam. Management called it the most significant investment in those assets since original development.
It also said initial performance from the first Te Giac Trang (TGT) well was ahead of pre-drill expectations. Throw in the fact that itâs debt-free and has cash of about $16.6m and itâs easy to see why its valuation is climbing.
Valuation
After it’s recent stellar run, this red-hot penny stock doesn’t come cheap. The company’s shares trade on a price-to-earnings (P/E) ratio of around 31 with a 4.5% dividend yield.
That does feel quite punchy for a small company in a notoriously cyclical sector. However, if oil prices stay elevated, the company’s potential outsized earnings could help to support that strong yield.
That said, it pays to be cautious, particularly during these uncertain times.
Small producers can see their fortunes swing quickly with oil prices, and the current price action is heavily tied to a geopolitical shock. If the war premium falls away quickly, I wouldnât be surprised to see a share price correction or crash.
Key takeaway
The Iran war has turbocharged interest in anything oil-linked as investors position themselves for the potential economic fallout.
Pharos has been a beneficiary as a micro-cap stock that has shown some recent signs of promise. However, big risks remain including a potential commodity price drop or operational headaches.
That said, the companyâs positive Vietnamese drilling programme means it’s more than just a headline play. I think the companyâs preliminary results release on Wednesday will be a must-watch for investors interested in the energy sector.
The post Up 25% YTD! Is this red-hot penny stock still ‘cheap’? appeared first on The Motley Fool UK.
Should you invest £1,000 in Pharos Energy plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Pharos Energy plc made the list?
More reading
Ken Hall 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.
