HSS Hire (LSE:HSS) is a penny stock I’m considering adding to my portfolio this month. Here’s why.
DIY boom
HSS Hire is a leading provider of tools and equipment to the construction industry. Its business is split into two divisions, which are tool and equipment rental, and customer services. Tool and equipment rental, which involves buying, maintaining and leasing out equipment, is its largest and makes up nearly 70% of total revenue. The customer services arm is split into two subdivisions. One is a tool finder and the other subdivision offers training courses around use of equipment.
There has been a boom in DIY in the UK since the pandemic began. Consumers have resorted to spending leisure activities and holiday money on projects in the home. This has benefitted DIY firms.
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Penny stocks are those that trade for less than £1. This low cost is a result of higher risk and increased volatility. As I write, HSS shares are trading for 17p. The shares are up 40% in 12 months from 12p at this time last year.
Penny stock opportunity
Here’s why I like HSS Hire for my portfolio.
- HSS is a market leader in the equipment rental sector. It has a long history of trading and has organically grown into a major force throughout the country. It has 240 locations in the UK and Ireland and employs over 2,500 people. It has a diverse business model with its different divisions and works hard to retain business-to-business customers, which are the most profitable. Its vast reach also helps it do that in my opinion.
- HSS has a good track record of performance. I understand that historic performance is not a guarantee of the future. I still tend to review this as a gauge. HSS Hire’s financial year runs from December to December. I can see that prior to last year, revenue and gross profit increased year on year for three years. Not many other penny stocks have such a long and positive track record. The pandemic stopped this for the fourth year. Results are due again in the coming months and I believe a return to pre-pandemic levels is on the cards. This could drive the share price up, which means it could be a good time for me to buy.
- The recent rise in DIY throughout the UK and pent up demand for such equipment has boosted firms like HSS. More people are looking to spend money on passion projects and sprucing up their homes.
Risks and verdict
HSS shares do not come without risks, however. Firstly, the recent issues with supply chain and haulage will affect HSS. Secondly, construction equipment rental is a competitive market which could affect its profit margins. Finally, this current pent up demand may fade away as reopening continues, which may mean HSS performance could falter as consumers book holidays and spend money on leisure activities once more.
Overall, at 17p per share, I would happily add HSS shares to my portfolio right now. I believe it is a good penny stock with some risk attached but lots of growth potential over the long term backed up by a favourable track record and good current market conditions.
