Penny stock Currys (LSE:CURY) is one of the most shorted stocks in recent months. Despite this, I would still add the shares to my holdings for long-term growth and returns.
You might be wondering what “shorting” or “short selling” is. To short a stock is to borrow it from someone else, and sell it at the current price. If the price declines, the short-seller can buy it back at the lower price, return it to the original owner, and make a profit. On the other hand, if the share price rises, the short-seller has to buy it back at a higher price, and will make a loss.
It is worth mentioning that when short-sellers load up on certain stocks, this is because they expect, often for good reason, that something negative will drive the stock’s price down.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Tech and home retailer
Currys is one of the UK’s leading retailers of technology products as well as household electrical and white goods. It currently has over 800 stores spanning seven countries and operates online too.
So what’s happening with Currys shares currently? Well, as I write, they’re trading for 59p, which puts Currys into the penny stock category. At this time last year, the stock was trading for 137p, which is a 56% drop over a 12-month period.
A penny stock with risks
I believe the reason that Currys shares have dropped is due to macroeconomic headwinds. Soaring inflation, rising costs, and global supply chain issues have affected it. Inflation levels have hampered many consumers’ ability to purchase certain goods, often considered luxuries, like large TVs or the latest technology that Currys sells. This will hurt performance and returns.
Another issue that could affect Currys is the competitive sector it operates in. Many of its products are generic products on offer from a number of retailers. If a competitor were in a position to offer better value for money, especially in current tough times, Currys could see market share and performance affected.
Why I like Currys shares
So to the positives then. Firstly, I believe Currys’ dominant market position, coupled with its profile and presence, will help see it through current economic volatility.
Next, Currys performance for FY 22/23 made for good reading, in my opinion. I do understand that past performance is not a guarantee of the future, however. For the full-year ending 30 April 2022, it said sales totalled £10.2bn, down 2% compared to last year, but pre-tax profit increased by a healthy 19% to £186m. Store sales increased well and it also opened two new stores in Cyprus too as part of its growth plans.
A penny stock with a passive income opportunity is enticing to me. Currys offers just that with a dividend yield of just over 5%. The FTSE 250 average is below 2%. I am aware that dividends can be cancelled, however. As a bonus, due to Currys shares falling, they look decent value for money on a price-to-earnings ratio of 10.
To summarise, I expect Currys to encounter headwinds in the shorter term. My approach has always been to buy and hold for the long term, however. I would buy and hold the shares as I expect Currys’ dominant market position to boost long-term growth and lucrative returns.
