After 17 years, Robert Walters is once again a penny stock – yet analysts eye a 143% recovery!

Professional recruitment provider Robert Walters (LSE: RWA) slipped into penny stock territory earlier this month, with the shares now trading around 83p on the London market. The last time they traded below 100p was in March 2009.

Down by roughly two‑thirds over the past year, it’s a brutal hit for what used to be a solid mid‑cap FTSE share. Yet some analysts still think the price could more than double from here over the coming years, based on forecasts of a sharp rebound in profits and cash flow.

That would be a nice payday for investors buying today. But cheap doesn’t always mean good value, so I decided to take a closer look.

Why the dip?

Robert Walters places professionals into permanent, contract, and interim roles in the UK and Europe. The last couple of years have been tough as hiring freezes and weaker business confidence hit demand, particularly in white‑collar roles.

Management describes client and candidate sentiment as “cautious” and expects near‑term net fees to remain under pressure. The latest full‑year numbers show net fee income down 14% year on year, reflecting that slowdown in hiring activity. The group swung to a loss, with return on equity (ROE) sitting around -22% — not a good sign for shareholders.

In response, the board has suspended the dividend to conserve cash and protect the balance sheet.

Down, but not out

Despite the struggles, there are some positives. The company has cut operating costs and reduced headcount, which should help profits recover if hiring picks up. Management’s already highlighted early signs of improvement in markets such as the UK, Spain, and New Zealand – areas where hiring confidence will likely return first.

On basic measures, the shares look cheap, with a price‑to‑book (P/B) ratio of around 0.55 and very low sales multiples. Analysts’ models imply strong earnings growth from this depressed base, which is why some see recovery potential if trading normalises.

Plus, while debt’s risen, key ratios still look manageable, with a debt‑to‑equity ratio of about 0.90 and a current ratio above 1.

But we shouldn’t gloss over the risks. Earnings are in freefall, the dividend is on ice, and recruitment’s a highly cyclical business. Things could get worse if the global economy slows further.

Considering the negative ROE and high leverage, there’s always a chance the shares could fall further before any recovery appears.

Other penny stocks to watch

Low‑priced stocks can offer good value, but in Robert Walters’ case, the risk for me looks a little too high right now. Personally, I’d rather look at smaller names where the growth story’s already coming through.

For example, Frenkel Topping Group trades at around 48p with revenue up 16.8% year on year, helped by rising funds under management in its specialist advisory business. Or, if you prefer income, Macfarlane Group sits near 61p and offers a forward dividend yield of roughly 5.8%, backed by a long record of regular payouts.

And those are just two of many UK penny stocks I’ve been watching lately.

Whatever you pick, diversification matters. Even if you lean towards income stocks, it’s sensible to have some growth names alongside them. That way, your portfolio isn’t relying on one type of stock or sector to do all the heavy lifting. 

The post After 17 years, Robert Walters is once again a penny stock – yet analysts eye a 143% recovery! 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 recommended Macfarlane Group Plc. 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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