Is penny stock Ebiquity (LSE:EBQ) a small-cap diamond in the rough and should I add the shares to my holdings? Let’s take a look.
Media and marketing
Ebiquity is an independent marketing and media consultancy. It has 18 offices internationally and operates in 14 high-value advertising markets, including London, Paris, New York, Madrid, Singapore, Shanghai, and Sydney. Founded in 1997, it was admitted into the FTSE AIM in 2000.
Advertising via a multitude of media channels is a growth market. Spending in the advertising sector is continuing to improve as the world reopens to business post-pandemic.
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So what’s happening with the EBQ share price currently? Well, as a quick reminder, a penny stock is a stock trading for less than £1. As I write, the Ebiquity shares are trading for 71p. At this time last year, the shares were trading for 46p, which is a 54% increase over a 12-month period. The shares are up 22% from the end of March, when full-year results ending 31 December 2021 were released.
For and against buying shares
FOR: Let’s take a look at Ebiquity’s performance historically and recently. I do understand past performance is not a guarantee of the future, however. I like when a penny stock has lots of historic trading and balance sheet information for me to review. Looking back, I can see the company reported revenue and profit growth for two years before the pandemic-affected year of 2020 saw levels drop slightly. Coming up to date, 2021 results released last month were excellent and saw the business grow revenue and profit after 2020 results were pegged back by pandemic issues. Revenue increased by 13% and underlying profit increased by 5% for 2021.
AGAINST: The marketing and media consultancy market is very competitive. This competition has only increased as digital transformation and technology adoption has continued, especially in recent years. Losing business to competitors could affect performance and any returns I hope to make.
FOR: Ebiquity has a history of organic and acquisition-led growth. Organic growth has been led by the growth sector it operates in. Ebiquity’s worldwide presence, especially in key advertising locations mentioned above is a key selling point that should help boost performance and growth in the long term.
AGAINST: Although I do like acquisitions from a growth perspective, there are common pitfalls that can hinder a business linked to regular and multiple acquisitions. Ebiquity is no different here. In fact, it has fallen foul of acquisitions affecting its balance sheet in the past and recording losses. One of the biggest issues with acquisitions is when a firm overpays for the business it is buying. Another issue is integrating the new business into the existing one. Issues with synergy can make an acquisition unsuccessful. Both of these factors can affect the balance sheet and investment viability of a business like Ebiquity too.
A penny stock I’d buy
One of my investing mantras is to look for small-cap gems that could turn into lucrative holdings for my portfolio. I believe Ebiquity could be a good option for my holdings and I’d buy a small number of the shares. Ebiquity’s growth to date and the growth sector it operates in help me come to my conclusion.
