My favourite penny stock I’d buy right now

This penny stock could help the world in its transition to a more sustainable future. I would buy it for its growth potential.

| 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.

If I had to buy just one penny stock today, I would buy Renewi (LSE: RWI) for my portfolio. This £461m market cap company qualifies as a penny stock because, at the time of writing, its shares are changing hands for 52p. 

Penny stock to buy 

The business of disposing and managing waste is an interesting one.

Most people don’t know what happens to their waste when they put it out for disposal, and most people don’t care. But the whole process is tightly managed and controlled. It’s also getting harder.

Several decades ago, most waste went to landfill. That’s no longer the case. Digging big holes and filling them with rubbish is considered by many to be hugely destructive and polluting. Instead, nearly half of all waste in England today is recycled. I expect this figure is only going to increase over the next few years. 

Recycling and disposing of waste is not a profitable business. Therefore, size matters. Bigger companies can achieve significant economies of scale. This generates larger profit margins, which provides more capital for investment and so on. 

Renewi is one of the largest waste disposal businesses in Europe. Revenues totalled €1.8bn in 2020. 

However, the business has not been profitable lately. Losses totalled €78m in 2020.

This may change in 2021. According to its latest trading update, underlying EBIT for fiscal 2021 is now expected to be around €68m. This kind of growth is highly impressive for a penny stock. 

Of course, there’s no guarantee the company will hit this target. Nevertheless, I think it shows its potential. Debt is also expected to fall materially to less than €350m in 2021. That’s down from €457m in 2020. 

Management believes that the company’s growth initiatives will deliver significant earnings growth over the next three years. According to the business, these initiatives, coupled with the global drive for a renewable future, will “deliver significant additional earnings over the next three years and beyond.”

Risks and challenges 

The qualities outlined above are some of the reasons why this is my favourite penny stock. Still, this investment is not risk free. 

Challenges include regulations, limiting the group’s ability to operate if governments decide to place more stringent restrictions on the recycling industry. Higher costs could also eat into profit margins. Rising costs may limit the firm’s ability to “deliver significant additional earnings.” Being a waste disposal business, Renewi also faces risks unique to the industry. These include the chances of a waste spill or additional pollution from the disposal of rubbish. 

Despite these risks and challenges, I would buy the penny stock for my portfolio today. I believe it has a bright future as the world invests substantially more time and effort in preparing for a more sustainable future. I think Renewi could be a fundamentally important party in this development. 

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.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK 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

Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

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

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »