One penny stock I am considering adding to my holdings is Speedy Hire (LSE:SDY). Let’s take a closer look at some fundamentals, as well as recent developments to help me make a decision.
Construction equipment
As an introduction, Speedy Hire is a construction tools and equipment rental and hire business. With over 200 depots across the UK and Ireland, it has over 300,000 itemised assets available for trade and DIY customers.
So what’s happening with Speedy shares currently? As I write, they’re trading for 37p, putting them in penny stock territory. At this time last year, the stock was trading for 59p. This equates to a 37% drop over a 12-month period. Many FTSE stocks have fallen in recent months due to macroeconomic headwinds, coupled with the tragic events in Ukraine.
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The bull case
Let’s look at some of the positives of Speedy shares. To start with, I can see that they are trading at dirt-cheap levels on a price-to-earnings ratio of just nine.
In addition to this, Speedy shares would boost my passive income stream through dividend payments. The current dividend yield stands at 5.9%. To provide some context, the FTSE 100 and FTSE 250 average yields stand at 3%-4% and 1.9%, respectively. I am conscious that dividends are never guaranteed, however.
Next, Speedy has a decent track record of performance. I do understand that past performance is not a guarantee of the future. However, looking back, I can see it has recorded consistent revenue and profit for the past four years. It’s recent full-year results were very close to pre-pandemic levels. This is encouraging as the pandemic caused disruption for many firms.
Finally, I believe Speedy operates in a burgeoning sector right now. Construction projects and spending is increasing. For example, the UK government is looking to spend more on essential infrastructure. Furthermore, there is a shortfall of new homes in the UK, meaning demand is outstripping supply. Many house builders are working hard to plug this gap. Although I do not profess to be a construction expert, my research tells me that it is more cost-effective to hire tools, rather than buy them. This should help boost Speedy’s performance, and level of return.
A penny stock with risks & my verdict
All stocks have potential downsides and risks, and Speedy is no different. First off, the current economic volatility could play a part in slowing down infrastructure projects. This could hinder demand for its products, as well as hurt performance and returns. Next, due to inflation, the cost of materials has risen. This means that Speedy may need to hike prices to remain profitable. This could also hurt demand and customer numbers.
Overall I like the look of Speedy, as a business, and as a stock to boost my holdings. It has a good profile and presence. The shares look good value for money and would boost my passive income stream. I believe current headwinds could cause shorter term issues. However, I invest for the long term, so would expect to see growth and consistent returns eventually. I will be buying the shares.
