Investing in cheap, small-cap shares like penny stocks can be a wild ride, at times. They can also be more likely to fail than larger-cap businesses, while price volatility can often be extreme.
But on the plus side, they can also deliver juicy long-term capital gains as earnings take off and share prices increase.
These two former penny stocks have enjoyed impressive share price gains more recently. I’m optimistic too, that they could continue rising in 2025 and potentially beyond.
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The gold miner
Gold prices continue to rise sharply and are now within a whisker of the critical $3,000 per ounce marker. With worries over the broader political landscape mounting, analysts are continuing to hike their short-term price forecasts.
UBS, for instance, now predicts bullion to hit $3,200 in the next year.
Propelled by the recent price surge, gold digger Metals Exploration‘s (LSE:MTL) more than doubled in value over the last year, to 5.9p per share.
The business owns the Runruro gold mine in The Philippines, from where it produced 83,897 ounces of the yellow metal in 2024 (beating upper guidance forecast of 82,500 ounces). It also owns exploration assets in the country, as well as in Nicaragua following its takeover of Condor Gold last month.
The Condor deal saw it snap up the La India gold project, from where it’s targeted annual production is 145,000 ounces.
This is all pretty exciting. But it’s important to remember that investing here also involves a high degree of risk. Mining operations don’t always go to plan, and cost and production issues can tear up earnings forecasts. There’s also no guarantee that gold prices will continue their impressive ascent.
Yet the cheapness of Metals Exploration shares suggest it’s worth serious consideration. For 2025, they trade on a forward price-to-earnings (P/E) ratio of 3.7 times.
This — along with the small-cap’s strong operational momentum and the bright outlook for gold prices — could facilitate more impressive share price gains.
The brick maker
Improving housing market conditions have helped Michelmersh Brick (LSE:MBH) burst back out of penny stock territory in recent weeks. It’s up 11% in the year to date, at 110p per share.
As the name implies, this small-cap provides a staple product for the construction of new homes. It manufactures more than 122m clay bricks and pavers a year, and things are looking up as housebuilders (including Barratt Redrow, the UK’s biggest builder) start discussing production increases again.
Confidence is improving following recent Bank of England interest rate cuts. Encouragingly in September, Michelmersh’s order book was at its highest since 2022.
Given this backdrop, could Michelmersh shares continue rising in the near term? I’m on the fence, to be honest.
A meaty forward P/E ratio of 13.4 times may limit further upside. There’s also the danger that rising inflation, and its impact in interest rates, could draw the momentum out of the housing sector.
Yet despite this, I still think the penny stock’s still worth serious consideration. Over the long term, I believe earnings could shoot higher as the government executes its plan to build 300,000 new homes each year.
Michelmersh’s also has financial scope for more acquisitions (like that of FabSpeed in 2022) to supercharge profits.
