2 UK penny stocks to consider in April

Penny stocks can be risky investments. However, there can be some lucrative opportunities in this area of the market, says Edward Sheldon.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Penny stocks (those that trade for less than £1) tend to be higher-risk, speculative investments. These stocks can be highly volatile. And if you invest in the wrong companies, the losses can be significant.

Having said that, this area of the stock market can throw up some very lucrative investment opportunities. So, it shouldn’t be ignored completely, in my view.

Here, I’m going to highlight two UK penny stocks I believe are worth a closer look right now. Both companies are profitable and appear to have decent long-term growth prospects.

Strong growth track record

One penny stock I believe looks interesting at the moment is Alliance Pharma (LSE: APH). It’s a UK healthcare company that owns the marketing rights to around 80 consumer healthcare brands and prescription medicines. Some of its key brands include Kelo-Cote, Nizoral, and Amberen.

What stands out to me about Alliance Pharma is that the company had a good long-term growth track record. Over the last five years, revenue has increased by around 170%. Revenue did take a small dip last year (which isn’t surprising given the environment). However, it’s expected to bounce back this year. For FY2021, City analysts expect top-line growth of 28%.

I also like the fact the company is profitable and pays a dividend. Quite often, penny stocks don’t. For FY2020, the company declared a full-year dividend payout of 1.61p. That’s about 46% higher than the one declared five years ago. At the current share price, the yield is about 1.7%.

There are plenty of risks to the investment case here, of course. A poor acquisition could set the company back significantly. Currency risk is also worth mentioning as the group generates substantial sales abroad.

However, the company appears to be confident about the future, stating recently that it looks forward to “regaining the strong momentum and revenue growth that the group has enjoyed in recent years.” So, I think it could be worth a closer look right now.

This penny stock just declared its first dividend

Another UK penny stock I believe is worth highlighting right now is EKF Diagnostics (LSE: EKF). It’s a leading global medical manufacturer that specialises in point-of-care and central lab devices. Its products are used in hospital and research laboratories, doctor’s offices and blood banks in more than 100 countries. EKF also manufactures and distributes products related to Covid-19.

EKF recently posted a very strong set of 2020 results that were boosted by its Covid-19-related activities. For the year, revenue was up 45% to £65.3m while profit before tax was up 180% to £15.4m.

As a result of this strong performance, the company declared a maiden dividend of 1p per share. The company also said it’s confident trading for the year ending 31 December will be “significantly ahead” of already-upgraded management expectations.

I don’t expect the company to keep growing at this prolific rate forever. Post Covid-19, sales and earnings growth are likely to normalise. It’s worth noting that if future growth is disappointing, the share price could fall as the stock has enjoyed a strong run over the last year.

Right now however, the company appears to have a lot of momentum. And after declaring its first dividend, I think it could be worth considering as part of a diversified portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Alliance Pharma. 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.

More on Investing Articles

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »