Why I think this 20p penny stock could be set to explode in 2024

Jon Smith flags up a penny stock that he feels could outperform in the future due to growth in the cyber security division.

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We’re all on the hunt for stocks that could generate a high return. Although penny stocks carry a higher level of risk than larger blue-chip firms, the small size does mean that large gains can be realised. Here’s one idea I’ve spotted that I think could shoot higher over the coming year.

A small firm with big potential

BATM Advanced Communications (LSE:BVC) is a tech company that focuses on two main areas. One is network and cyber security divisions and the other is bio-medical solutions.

Over the past year, the share price is down by 7%. With a current price of 20p, the market cap stands at £89m, making it a penny stock.

I like the company because I feel demand for the cyber security division in particular will increase over the next year. This is because we’re being warned that the rapid rise of artificial intelligence (AI) this year could have some unwanted side effects. One is that a rise of cyber attacks using AI is very likely. In fact, it’s already happening!

The Celare software that BATM sells is a secured network, and has good reviews. In fact, earlier this year it received a government cyber security order worth $26m. I’d expect revenue to increase next year with higher sales from this area.

Noting the location

One concern that needs to be flagged up is that the firm is headquartered in Israel. It does have offices around the world, but Israel is at war and there are negative economic impacts already being experienced in the country as a result.

However, the business doesn’t rely massively on any one physical location. Further, I don’t see the conflict with Hamas going on for a long period (which we all fervently hope). So I expect any impact on the firm to be limited.

The post-pandemic flush out

The stock might be familiar to some given the bio-medical solutions arm. It switched to help and make Covid-19 diagnostic kits during the pandemic. This saw the share price leap above 100p in 2020 as profits soared.

This demand has now gone, hence why the stock is much lower now. Yet I think that if the cyber security division can see high demand in the coming years due to AI-related attacks, we could see the stock jump.

Granted, a move of the magnitude of the one from the pandemic in such a short period of time is unlikely. Yet I believe that the profitability increase from software sales would be more sustainable than the Covid kits anyway. It’s not a flash in the pan, but rather a solution to a problem that I think will be here to stay.

As a result, I think investors should consider adding this penny stock to a portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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