Penny stocks can be extremely volatile and risky investments. This is because they often have low liquidity and paper-thin financials. After all, most are not market-cap minnows for nothing!
But they also have the potential to be financially rewarding investments due to their small size. Here, I’m going to consider whether I should buy two unloved penny stocks currently trading at 52-week lows.
Podcasts
The first stock is podcast developer Audioboom (LSE: BOOM). I’m familiar with this stock as it’s been on my watchlist for a couple of months now. Unfortunately, it’s fallen 28% in that time, and is down a massive 76% over the last year.
What’s gone wrong here?
Well, the shares had already taken a hit due to concerns about a slowdown in global advertising spend. And the company’s first quarter confirmed these fears, as its underlying earnings plunged from $900,000 last year to $200,000.
Audioboom’s chief executive Stuart Last said that “in the medium to long-term, we are confident that brands continue to trust podcasting as a key part of their marketing strategy“.
He also expects the group to deliver year-on-year growth as the ad market recovers. However, the US is still teetering on the edge of a recession this year, so it’s possible that companies could keep a lid on their ad spend.
This remains a risk for the stock, given the fact that the firm is struggling to eke out a profit as it is.
That said, I remain bullish on the future of podcasting around the world. Plus, Audioboom recently renewed a multiple-year deal with Formula One to produce, distribute, and monetise its extremely popular official podcasts.
I’m going to keep the stock on my watchlist for now, as it could be an interesting turnaround play, assuming the US avoids a recession.
Low-maintenance building products
Epwin Group (LSE: EPWN) is another stock on my watchlist. But unlike Audioboom, this is a company that is regularly profitable. Indeed, the stock is trading on a forward price-to-earnings (P/E) multiple of just 7.2, which demonstrates how unloved it is.
The reason isn’t hard to fathom. The Solihull-based firm sells building products, including energy-efficient windows, doors, and fascia systems, at a time when the property market is in the doldrums.
The risks are clear, but already seem more than priced in considering the stock has fallen 40% in 18 months.
Yet the business remains resilient, as it announced last week that current revenue is running 3% higher than this time last year. And the intense inflationary pressures it has faced for the past two years, particularly for raw materials like PVC resin, appear to be easing.
The company has low net debt and is operating in an industry with favourable long-term tailwinds. The biggest of these relates to the UK’s need to decarbonise its ageing housing stock to meet its net zero ambitions.
The group’s products have inherently strong environmental credentials, and would seem likely to be in high demand over the coming years.
Plus, the stock comes with a dividend yield of 7%, with the prospective payout covered two times by earnings. I think I’m going to promote this penny share to my buy list in the coming weeks.
