Penny stocks are considered a risk too far for many UK share investors. This is partly because their low prices and low volumes mean that they can be prone to extreme price volatility. It’s also due to the fact that the vast majority are small companies which may struggle to raise finance to facilitate future growth without the need to tap their shareholders for cash.
Penny stocks are also unpopular because small caps aren’t subject to the usual checks and balances that larger companies are. Thus investors often don’t have the same level of peace of mind that owners of bigger-cap UK shares can have.
Penny stock danger
It’s clear that share pickers (myself included) need to be super careful before buying cheap UK shares like these. But those brave enough to take the plunge with penny stocks can end up unearthing some stock market beauties that the rest of the market has largely missed.
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On top of this, many low-cost stocks such as these trade on ultra-low multiples which one may be able to argue bakes in the threats to investors’s money that I mention above. With all this in mind, here’s a penny stock I think is a great bargain buy today.
In the mix
Steppe Cement (LSE: STCM) makes cement in Kazakhstan. And it trades on a forward price-to-earnings growth (PEG) ratio of 0.2. A reminder that a stock trading on a reading of below 1 could be considered to be undervalued by the market, or so goes conventional investing theory.
This penny stock’s low valuation is created by broker expectations that earnings will rise 53% year-on-year in 2021. I don’t think that this penny stock is just a flash in the pan, either. As a provider of essential building materials it’s well placed to ride the construction boom in the Eurasian country.
As the OECD notes, around three-quarters of Kazakhstan’s transport infrastructure needs to be replaced or repaired. The Kazakh government is also taking steps to aggressively tackle the nation’s housing shortage, something that will require massive amounts of cement. It plans to build 103m square metres of housing in the next five years, it was announced back in April.
Steppe Cement’s latest financials showed revenues soar almost a quarter year-on-year in the first half of 2021. Volumes rose 10% from the same 2020 period, while the average cement price jumped 11% to 19,814 tenge per tonne. The company said that cement demand in the country leapt 25% between January and June.
Too cheap to miss?
It’s important to remember the relationship between the emerging market’s economy and oil prices. The rise of green energy could have a significant impact on economic conditions in Kazakhstan and therefore profits at cyclical shares like Steppe Cement.
That said, I think this problem — along with the dangers that come with investing in penny stocks specifically — are baked into this cheap UK share’s current price. I think Steppe Cement’s a great growth share I’d happily snap up today.
