I’ve noticed a few penny stocks lately that have climbed above the 100p level and are no longer cheap. But there’s still a few with decent growth potential, and I think these two are worthy of further research.
UK trade and manufacturing hit a wall in 2018, and small industrial businesses took the brunt of the crash. The combined effects of Covid and Brexit didn’t help and many businesses folded under the weight of the onslaught. But those that survived are now well-positioned to take the lion’s share as the recovering economy brings fresh demand.
Mincon Group
When looking at small manufacturing firms with growth potential, one promising mining-related stock always pops up.
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Mincon Group‘s (LSE: MCON) a little-known rock drilling company based in Ireland, with 604 employees and £93m market-cap. For almost 50 years it’s been manufacturing all kinds of drilling products for miners, excavators and anyone else that wants to make holes in the ground.
It’s a simple, non-technical business that’s probably seen little change in the past five decades. As a result, it’s unlikely to be the next Nvidia — but it’s enjoyed periods of significant growth in the past. In 2018, the share price reached 153p but plunged soon after and has had mixed results since.
Despite equity increasing steadily over the past decade, the share price is at an all-time low. But it’s in a good industry and compared to earnings, its price is ‘cheap’. With a price-to-earnings (P/E) ratio of only 14, it’s well below the industry average. An improving economy could boost sales, bringing it more in line with the rest of the industry.
Sure, profit margins are half what they were last year but earnings are forecast to grow 20% a year going forward. And with minimal debt and a 4% dividend yield, there might still be life in the old girl. I think there’s good potential in the low-priced shares.
Trifast
Trifast‘s (LSE: TRI) a £97m UK-based company that makes industrial fasteners and category C components — basically, nuts and bolts. Like Mincon, it’s a simple business that’s been around since the 70s with little change to operations.
Declining income means the company’s recently become unprofitable, with the shares falling 67% in the past five years. But with a low price-to-sales (P/S) ratio of 0.4, it now has lots of room to grow. Last year, it cleared £241m in sales and revenue increased 9.1%, prompting analysts to forecast a 50% price rise in the coming year. And with earnings forecast to grow 103% per annum, things are certainly looking up.
But first, it must climb out of its current hole. Despite paying a dividend of 2p per share, its earnings per share (EPS) is currently running at a loss of 2.8p per share. It’ll need things to improve if it hopes to keep that up. Interim CEO Scott Mac Meekin plans to do just that, “creating an aligned leadership team with the skills and necessary capabilities, visions and drive to maximise 50 more years of success.”
Since the vast majority of industrial manufacturing still requires nuts and bolts, I expect demand will increase as the economy improves. And with revenue and cash flow improving, Trifast may already be on the mend.
