Could this FTSE facilities management firm be the best penny stock out there?

Jabran Khan explores whether this huge facilities management firm is one of the best FTSE penny stock out there right now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Penny stocks are seen as quite risky investments. After all, they are priced low for a reason. However, I believe some FTSE penny stocks could lead to generous returns in the long run.

Is this the best FTSE penny stock right now?

Mitie (LSE:MTO) is the UK’s leading facilities management and professional services company and a major player in the industry. It employs approximately 50,000 people who look after over 2.5m worth of assets. Mitie is one of Britain’s largest government contractors. Could MTO be one of the best penny stocks on the FTSE? It is a huge company and plays a vital role in the government’s infrastructure. Here’s my verdict.

Penny stocks lose big in market crash

When the market crashed, many FTSE penny stocks lost significant share price value. Mitie lost over 50% of its share price value on the FTSE All Share. At the beginning of the year, its per share price was close to 80p before plummeting close to 35p. The share price began to recover, reaching close to 50p before a rights issue was announced last summer. I believe this negatively affected its price.

Currently, the Mitie share price stands close to 60p. This is its highest price point since March 2020.

Favourable trading update

MTO released a strong third-quarter trading update at the end of January. Revenue rose 6.7% to £573.9m. It confirmed sales rose as Covid-19 lockdown restrictions eased in the summer period. Mitie plays a critical role for the UK government in the fight against Covid-19 through its multiple support contracts.

For the nine months to December, Mitie’s revenues were down 4.3% year-on-year at £1.55bn. One of the main reasons behind this was the loss of a Ministry of Justice contract. In addition to this, an active NHS Properties contract saw its scope reduced.

Overall, MTO was happy with sales and exceeded its own expectations. The support services provider chalked up £770m worth of new contracts in the nine months to December, it said. MTO’s profit consensus for the full fiscal year has been upgraded to surpass initial forecasts due to a positive nine months.

My verdict

There are risks involved. My biggest concern is MTO’s debt levels and debt track record. Its level of total liabilities and conversion of EBIT (earnings before interest and taxes) to free cash flow definitely weigh it down, in my opinion. But the good news is it seems to be able to grow its EBIT with ease.

Another risky factor that could affect its standing is the Covid-19 pandemic. In its trading update, it confirmed that Q4 trading is expected to be lower than Q3. In my eyes, this is no doubt linked to the fact we have been in a lockdown since December 2020.

At its current price, it is cheap but climbing for two reasons, in my opinion. Firstly, it has reported positive results. Secondly, insiders seem to be buying shares. This is usually a sign of confidence and one I like. I would not class Mitie as THE best FTSE penny stock out there but I believe it is still worth seriously considering for my portfolio. 

Away from penny stocks, here is one of my best stocks to buy now on the FTSE that I believe is worth a serious look.

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.

Jabran Khan 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.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »