Penny shares are often seen as riskier than usual, and they can be. That means they can fall more than others when the market is dropping and investors are looking for safety.
Does that mean it a good time to buy penny shares now? With a bit of care, yes, I think it is.
I’m looking at three here with market caps between £50m and £100m, and share prices between 50p and 70p. They’re all listed on the Alternative Investment Market (AIM).
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Investment
Ebiquity (LSE: EBQ) provides investment analysis and marketing analytics.
We’ve seen losses for the past couple of years. But forecasts show a profit for 2022, with results due on 30 March.
Revenue is reportedly up by 20%, with organic revenue up 9%. A 12% operating margin is four percentage points up on the prior year.
There’s £8.9m of net debt. But against a market cap of £63m, that looks fine to me.
Profit forecasts suggest a price-to-earnings (P/E) ratio of around 20. And that’s not obviously cheap. But if the outlook for the next couple of years is accurate, we could see it plunge to only around seven by 2024.
Ebiquity’s business must be vulnerable to any extended economic downturn, and I think that’s the biggest risk.
But if profits are sustainable now, I think it could be a long-term buy.
Lithium
CleanTech Lithium (LSE: CTL) floated on AIM in March 2022 at 30p. Since then, it’s up 66%.
The company has two lithium prospects in Chile. And any investment is a play on the future of demand from the battery business.
There are no profits on the table yet. Or, in fact, any revenue. So CleanTech has got to be the riskiest of the three. But I think it has a few things in its favour over rival lithium explorers.
Its operations in Chile appear stable and uncontroversial, and it has plentiful renewable energy resources at its disposal.
And thanks to its IPO and subsequent cash-raising activities, it looks to be sufficiently funded at the moment.
The success of an investment will depend on how long it takes CleanTech to reach profit. And forecasts don’t go that far yet. But I’m tempted to risk a small amount.
Property
Property shares seem like poison right now. And OnTheMarket (LSE: OTMP), which provides a residential property portal for potential buyers, sellers, landlords, and tenants, has suffered.
The company has had a couple of very tough years, and its shares have been on a long, slow slide.
And, well, the 2023 outlook for the property market isn’t exactly the brightest I’ve ever seen. But forecasts suggest it could be a turnaround year for the firm.
OnTheMarket’s year ended in January, and the latest trading update looks good. Operating profit should be between £4m and £4.5m (up from £2.7m).
And there’s £10.4m in cash on the books, with no borrowings.
Forecasts indicate a big rise in profits, which could drop the P/E to around nine by 2025. Even with today’s property risk, I think that’s cheap.
