There are plenty of top shares out there to help me make mammoth returns over the next 10 years. Heres one dirt-cheap penny stock I think could make me a fat stack of cash.
A top electric vehicle-themed stock
I think profits at Vertu Motors (LSE: VTU) could soar over the next decade as demand for electric vehicles (or EVs) takes off.
Sales of these low-carbon vehicles are certainly rocketing right now. Latest industry figures showed that battery and hybrid vehicle sales in the UK leapt more than 120% year-on-year in February. And last week the government announced plans for 300,000 charging points to be available by 2030 in encouraging news for the industry.
This would be 10 times the current level and could bolster EV sales still further. Concerns over range and ease of charging continue to influence the buying decisions of many people.
Vertu Motors operates more than 150 dealerships across the UK and sells product from most of the world’s leading carbuilders. It therefore has significant revenues potential as demand for low-emissions vehicles booms (today it sells nine out of 10 of the country’s most popular EVs).
Threats to Vertu Motors
My main concern with buying it today is the threat of sinking revenues in the near term. This penny stock is highly sensitive to broader economic conditions so the current cost of living casts a shadow over it. The company also faces the threat of prolonged stock shortages as weak semiconductor supplies persist.
Latest figures from the Society of Motor Manufacturers and Traders (SMMT) showed car production in Britain tanking 41% year-on-year last month. This was the biggest February fall for some 13 years.
Problems could get even worse too if Covid-19 cases in China keep rising and chip manufacturing is hit.
Why I’d still buy this penny stock
That being said, as someone who invests with a long-term view I’d still buy Vertu Motors today. The stock isn’t without risk. But this is the same with any UK share and I think the car retailer could deliver delicious shareholder returns over the next decade.
Besides, at current prices I think Vertu Motors could be too cheap to miss despite those aforementioned threats. The retailer’s share price has slumped around 15% from January’s multi-year highs. This leaves it trading on a forward price-to-earnings (P/E) ratio of 8.8 times for this fiscal year (to February 2023). This is well inside value territory of 10 times and below.
Vertu Motors also offers plenty of punch from a dividend perspective at recent prices of 64.4p. A predicted 2.3p per share full-year payout results in a chunky 3.3% dividend yield.
And what’s more, this anticipated dividend is covered 3.5 times by expected earnings, well above the widely-regarded security benchmark of two times. This gives me confidence that Vertu Motors should make this estimated dividend even if conditions in the UK car market worsen considerably in the near term.
