I’ve been hunting for another penny stock to add to my ISA in 2024. I’m keen to do so because I’ve noticed a couple of market minnows in my portfolio — Creo Medical and hVIVO — have really blossomed in 2023.
As I write, the former is up 49% while the latter has surged around 121%. Having said that, Agronomics is down 20% for me. There’s always one.
I’m hoping the following penny stock will be another winner.
A potential hidden gem
Windward (LSE: WNWD) is an Israel-based software company that operates in the area of predictive maritime analytics. Its platform combines artificial intelligence (AI) and big data to serve the global maritime industry with risk management solutions. The platform identifies patterns and anomalies.
The company has been adding customers at an impressive clip. In the six months to the end of June, it bagged 48 new commercial customers, which was almost as many as in the whole of 2022.
This brought its total customer count to 174. Then in November, it signed a five-year contract worth $3.5m with a European national coastguard. Its technology “will protect against the increasing sophistication of maritime bad actors“, the firm said.
Meanwhile, it has secured a partnership with London Stock Exchange Group (LSEG) to integrate its technology into LSEG’s Workspace platform for trading and chartering customers. This allows approximately 117,200 global vessels to be tracked at sea.
Improving profitability
This is a software company, so these customer wins should be translating into healthy levels of predictable annual recurring revenue (ARR). And indeed that’s what we’re seeing. ARR jumped 23% year on year during H1 while gross margin expanded to 78%, up from 72% last year.
On the negative side, Windward still isn’t profitable and is expected to post a net loss of $9m on revenue of $26m this year.
However, the group managed to halve its rate of operational cash burn during H1. And analysts see losses falling to around $4m next year, which would be a substantial improvement from 2022’s net loss of $19.2m.
So there’s a clear trend towards positive earnings here, with EBITDA profitability forecast for 2025. Reassuringly, the company has $17.9m of cash to get it there.
This strong business momentum probably explains why the stock has surged about 82% in the last six months. Zooming out though, it’s still down 50% since going public two years ago.
I’m buying
Now, I must now address the elephant in the room, which is the war in the Middle East. After all, Windward is based in Israel, and the possibility of the conflict spreading further cannot be ruled out.
The company has confirmed that events there haven’t severely affected trading and its offices remain open. But it’s definitely a risk worth bearing in mind, I feel.
On the flip side, one of the consequences of these tragic wars, including in Ukraine, is increased sanctions on various regimes (and vessels). This environment is contributing to growing demand for Windward’s compliance product from commercial shipping companies.
The firm has a market cap of £72m, with its shares trading at 3.8 times trailing sales. For an emerging technology leader in a growing market, I think that looks very attractive. I’m going to add some shares to my portfolio.
