Penny stocks aren’t for the faint-hearted. Shares with a market-cap of £100m or less and a share price below £1 do carry some unique risks. Yet on the flip side, the potential reward and scope for growth is high. In some cases, much higher than FTSE 100 mature stocks. For experienced investors, here are a couple of options I like at the moment.
Beauty in the eye of the beholder
First up is Revolution Beauty Group (LSE:REVB). It sells make-up, skincare and hair products to major retailers, as well as selling online. The firm has grown quickly and went public back in 2021.
At the moment it has a market-cap of £93m. Over the past year the stock has risen by 14%.
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The business has endured a tough time over the past couple of years, but excites me because it seems to have left the problems behind now. It had issues with auditing and late publication of accounts, which caused both the CEO and CFO to depart last year. It all seemed a bit murky, but now former boohoo CFO Neil Catto is in the role.
Having an experienced senior management member bodes well for the future. Not only this, but financial results are improving too. The half-year results from last November showed a 20% increase in revenue to £90.4m from the same period the year prior. This helped to boost the pre-tax profit to £0.4m.
The business is 27% owned by struggling fashion retailer boohoo, which can be seen as a risk or a good thing depending on one’s viewpoint. Either way, it will be influenced by the (much larger) fast-fashion retailer going forward.
AI on the open sea
Another penny stock I like is Windward (LSE:WNWD). The maritime artificial intelligence (AI) firm is very unique in what it does, but is still small in size, with a market-cap of £94m.
The share price has jumped by 88% over the past year. I believe this is partly driven by the huge focus on AI companies, as well as the strong results Windward has been putting out.
For example, late last year, it confirmed it had won some large contracts with US government customers. Even earlier this month, a trading update said it “expects FY2023 results to be comfortably ahead of market forecasts”. Both events caused the share price to jump.
As for the AI frenzy right now, it’s clear that many investors believe it’s the future. Does this mean the Windward share price is being expanded by hot air surrounding this technology? I don’t believe so, but it’s certainly a risk to consider.
The stock has moved higher very quickly and could see some retracement lower as investors settle on more realistic expectations of the uses of AI going forward.
I’m thinking about adding both stocks to my portfolio. Both carry risks, so only confident investors should consider buying.
