One penny stock that caught my eye recently is Calnex Solutions (LSE: CLX).
Macroeconomic issues and profit warnings
Calnex is a Scottish technology business. Its core offering is testing and measurement solutions to the telecoms sector. In simple terms, it helps telecoms businesses ensure the quality of their services.
Calnex shares haven’t exactly set the world alight in recent months due to macroeconomic volatility. To compound matters, the business provided a profit warning last month whereby it said profit would be 20%-30% lower than anticipated. The company said weakened demand for its services against the back drop of economic turbulence had hurt it.
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I understand forecasts don’t always come to fruition, but missing by that much is never a good look, if you ask me.
Over a 12-month period, Calnex shares are down 61% from 154p at this time last year, to 59p, as I write. Since last month’s announcement, they’ve dropped 50% from 118p to current levels.
A turnaround on the cards?
It’s worth noting that Calnex had a great record of revenue and profit growth for the past few years. I reckon this is a prime example of not reading too much into past performance to gauge what could happen in the future.
Despite the recent doom and gloom, I think Calnex shares could potentially mount a turnaround. To start with, it can count some of the biggest telecom firms as customers. These include BT, AT&T, and Vodafone. Partnerships with large players in the market could help it mount a fightback.
The rollout of the 5G network could provide a vital boost to Calnex shares in the years ahead. Like all new critical infrastructure and tech, thorough testing is required to ensure service levels are up to scratch. The 5G rollout is set to continue for a number of years yet, so there is potential for Calnex to capitalise.
Calnex also said in its beleaguered update that it is hoping to return to revenue and profit growth for 2025. Plus, there’s an added motivation for the business to bounce back as its founder, Tommy Cook – still in charge of the business – owns more than 17m shares. I’m always intrigued when insiders running a business own shares. They’ve got their own hard-earned cash at risk so if that’s not motivation, I’m not sure what is.
High-risk but high-reward stock
There’s lots to like about Calnex despite falling into penny stock category. An established customer base, market trends such as the 5G rollout that could boost the business, as well as insiders owning shares are all positives. Furthermore, some well-known institutional investors are on board, such as JP Morgan. This could be a sign of faith in the business.
I’d be willing to buy some Calnex shares for my holdings when I next have some spare cash to invest. At just under 60p a share, I wouldn’t be buying loads, but enough to help diversify my portfolio. However, I understand that the short-term outlook is bleak. I’m a long-term investor so I’m prepared for a bit of pain along the way for long-term gains.
