Here’s why this penny stock jumped almost 30% last week

Paul Summers reflects on a great week for a penny stock he’s backed for years. This Fool reckons the share price could push much higher, in time.

| 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 can register the same gains in a matter of days that more established businesses take years to achieve. That’s what happened with one of my holdings last week when shares in driver monitoring tech company Seeing Machines (LSE: SEE) jumped almost 30%. 

I see no reason to bank my gains just yet. In fact, I’d be inclined to buy more.

Why is this penny stock motoring?

A recent, bullish trading update is one reason. On Tuesday, SEE said royalty revenues from its Automotive division had started as more than 100,000 vehicles left showrooms equipped with its Driver Monitoring System (DMS) tech. News of “significant growth” in its Aftermarket business (where SEE’s accident prevention products are installed in heavy vehicle fleets) was another plus.

All this allowed the firm to say it expected reported revenue for the year to the end of June to come in at A$47.3m. That’s up 18% from the previous year.

Importantly, the AIM-listed company now believes business will “increase sharply” over the next 2-3 years as new transport safety legislation kicks in. In fact, the mid-cap identified potential revenue of “over A$900m” from its automotive pipeline. A recent deal to install its tech into the Air Traffic Control environment (via Airservices Australia) also shows just how broad SEE’s markets might become in time.  

The second reason I think this penny stock is flying relates to last Thursday’s news that US chipmaker Qualcomm had made a $4.6bn bid for automotive tech firm Veoneer. A bidding war with rival Magna International may now ensue. This makes me even more confident that Seeing Machines will be snapped up for a tidy sum itself further down the road. 

Another false dawn?

As promising as I think this penny stock is, I need to be wary of bias when it comes to SEE. As a long-term holder, I’ve had my share of false dawns. From October 2017 to mid-June 2018, for example, the share price jumped 350%.

As tends to be the case with penny stocks, this rise couldn’t be sustained. A lack of news on contract wins, capital raises and the global pandemic led the shares to fall to below 2p in March 2020. 

Based on this performance, I wouldn’t rule out more volatility. Yes, having A$47.7m of cash at the end of June suggests SEE is a far less risky proposition than it was a few years ago. However, support could quickly disappear if markets wobble on news of a slowdown in economic growth.

Investors also need to be aware that talk of “new business wins” will only work in the company’s favour for so long. At some point, the market will need to see the evidence. There’s also a question mark over just how much of that A$900m pipeline SEE can really snag.

Multi-bagger potential

Notwithstanding these concerns, I think this penny stock is one that might trade for over a pound eventually. In fact, the huge growth opportunities for eye-tracking technology make me wonder if SEE’s share price could climb even higher than this already-lofty target.

By luck or skill (probably more of the former), I’ve been right on a few penny stocks in the past. While it’s always wise for me to maintain a diversified portfolio, I’m hoping this may be the case again here.

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.

Paul Summers owns shares in Seeing Machines. The Motley Fool UK owns shares of and has recommended Qualcomm. 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

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »

Investing Articles

The JD Sports Fashion share price has just plunged another 16%! Buy or sell?

Harvey Jones is reeling after another sharp drop in the JD Sports Fashion share price. Should he seize the chance…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

This once-great FTSE 250 UK fashion retailer is down 47%, so is it time for me to buy?

A formerly iconic UK fashion brand, this FTSE 250 firm has fallen out of favour. But it has a new…

Read more »

Investing Articles

Nvidia share price dips despite strong Q3 results. What can we expect now?

Despite posting strong Q3 results after yesterday's market close, the Nvidia share price slipped 2.5% in aftermarket trading. Mark Hartley…

Read more »