A lot has been made of the gloomy economic outlook at present. With that in mind, one penny share that I believe could still yield good returns and continue to grow is Speedy Hire (LSE: SDY). Here’s why I’d buy some shares when I have the spare cash to invest.
Equipment for construction projects
Speedy Hire is a construction equipment and tools hire business. In the construction sector, it is often more cost-effective to hire such tools and equipment, rather than take on the huge outlay of purchasing and maintaining equipment. Speedy operates across the UK and Ireland with over 200 depots and over 30,000 assets available.
It is worth remembering that a penny share is one that trades for less than 100p. So what’s happening with Speedy shares currently? As I write, they’re trading for 36p. At this time last year, they were trading for 46p, which is a 21% drop over a 12-month period.
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A great penny share opportunity
I like Speedy Hire shares for a few reasons. To start with, the construction sector is usually one of the least affected during times of economic difficulty. This is for two reasons. Firstly, governments are looking towards the building of core infrastructure to stimulate the economy. Next, construction projects are well-planned and the pipeline of work is often decided years in advance of any work happening.
Speedy is in a good position to benefit from all of this and its extensive network of depots and vast array of assets should help future earnings and deliver shareholder returns.
Speaking of returns, Speedy’s current dividend yield stands at 7% currently. This is well above average for a penny share. In fact, this is nearly double the FTSE 100 average yield! I am aware that dividends are never guaranteed. In addition to this, the shares look good value for money on a price-to-earnings ratio of close to six.
Finally, Speedy Hire has shown great growth through its performance in recent years. I can see that revenue and gross profit have increased for the past three years in a row. However, I do understand that past performance is not a guarantee of the future.
My verdict
Despite my bullish stance on Speedy shares, there are a couple of factors that could impact its performance and returns. Firstly, rising inflation, one of the contributors of the economic woes currently, could mean that costs are higher, which could eat into profit margins and returns. If Speedy were to hike its prices, this could hurt the rental and hire of its products.
Another thing I need to be wary of is that Speedy must continuously invest heavily into its assets in order to keep up with construction methodologies. Any asset-heavy business has to do this. This investment could impact any returns I hope to make.
To conclude, Speedy looks like a great penny share option for my holdings. Trading at discount levels, offering an above-average yield, and backed up by great recent performance history, there is lots for me to like.
