I asked ChatGPT if I made a big mistake buying this 10p penny stock

I set aside a small corner of my portfolio for punts and penny stocks. I call them ‘moonshots’.

Unsurprisingly, the performance of this handful of speculative shares diverges wildly. For example, one (Joby Aviation) is up more than 200% since I first invested at $4, while another — DP Poland (LSE:DPP) — has dropped 25% since I bought it at 10p.

DP Poland’s a little disappointing. This is the Manchester-based operator of Domino’s Pizza stores across Poland and Croatia.

The penny stock is down 70% over a decade, but up 80% in six years. So it’s been a wild ride. Where might it go next?

Why I’m optimistic

As mentioned, the firm operates the Domino’s brand in Poland and Croatia. It recently exercised its 10-year renewal option for the franchise rights, through to 31 August 2035.

But why Poland (where most of the firm’s operation is today)? Well, the country’s economy is growing faster than Western Europe, with major cities developing rapidly (boosted by tourism and a rising middle class).

This should drive higher demand for Domino’s over the long run, as it tends to do well in markets with high-density cities. Obviously, Domino’s is famous for its speedy food delivery service. 

The company is growing, with revenue expected to hit £70m next year (up from £14m in 2020). Earlier this year, it snapped up Pizzeria 105, the fourth-largest pizza brand in Poland. This accelerated its pathway to 200 stores in the country.

With record trading levels, profitability improving, and a scalable platform for growth, DP Poland remains well positioned to deliver sustained, profitable expansion and long-term market leadership.

DP Poland

What are the risks?

The main risk is that DP Poland is still unprofitable. Back in September, it reported a £0.46m loss.

Of course, that’s a small loss, meaning the firm is moving closer to profitability. But it still adds risk because the business doesn’t have a track record of generating positive earnings (and might never do so).

Given this, there’s a possibility that the company will need to tap shareholders for more money in future, resulting in share dilution.

Finally, while the company reported a 6.5% increase in orders in Q3, like-for-like sales in Poland only grew by 1.1%. So there seems to be a bit of consumer weakness right now.

ChatGPT

Have I made a mistake then? I asked ChatGPT for its input, despite it being a robot that has never visited Poland nor eaten a pizza. It might give me something valuable.

ChatGPT started off by saying DP Poland is “the kind of thing that can make your portfolio feel like a dodgy kebab after a night out“. It knows me well.

Then it proceeded to tell me what I already knew. The bull case revolves around a strong brand, growing store count, improving margins, and Poland’s growing economy. The bear case is summed up as losses, dilution, and competition.

The bot said if it’s more than 1%–2% of my portfolio, I’ve taken too much risk. Thankfully it’s under 0.3%.

One thing ChatGPT didn’t mention was the firm’s pivot to a capital-light franchise model. I’m expecting this to noticeably improve margins over time.

I’m going to keep holding. But investors considering this penny stock should know it remains a risky moonshot near 7p.

The post I asked ChatGPT if I made a big mistake buying this 10p penny stock appeared first on The Motley Fool UK.

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Ben McPoland has positions in Dp Poland Plc and Joby Aviation. 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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