Penny shares are firms whose shares are valued below £1. Generally this low value is warranted, however at different instances the inventory has big development potential. I feel I’ve discovered an organization that has this potential! It was in a position to develop a tremendous 20% final yr and I feel there’s an excellent likelihood it might once more in 2022.
How do I discover good penny shares?
It may be an actual problem to separate the wheat from the chaff. The market is superb at finding out what an organization is price at any given time. What traders first have to do is study and perceive a enterprise: what does it do and the way does it generate profits?
After that we should work out if there’s a wider marketplace for that firm’s services or products. Does it have room to develop and can it have endurance? Conversely, does the enterprise want to vary to outlive?
One penny inventory instance can be Zephyr Vitality, a mining and petrochemical firm based mostly in London however working in Utah. As we speak it trades on the LSE for six.64p, down 12% from final month. Mining is a crowded and unstable enterprise. There’s plenty of competitors and corporations can have lengthy intervals of development adopted by even longer contractions.
Zephyr Vitality could also be worthwhile and it could do effectively within the near-term, however the unavoidable actuality of petroleum merchandise is that we have to use much less of them, no more. The corporate might pivot to focusing extra on mineral mining however when an organization is below strain to go away its merchandise within the floor, I personally don’t see a whole lot of room for development.
An absolute gem
By comparability, I feel Idox Group (LSE: IDOX) is an actual gem of a penny inventory. This UK-based tech firm builds software program utilized by public sector providers to gather and organise vital information.
Idox presently trades for 69p, up from 50p this time final yr, and it combines a whole lot of what I search for in an important funding.
It’s a tech firm, that means that it might maintain the price of enterprise low. Small workers, minimal work websites, little to no transport or manufacturing prices for completed merchandise. It additionally operates an ongoing service for its prospects, making it a significant a part of their digital infrastructure. I’m positive that anybody within the fashionable office is conscious of the significance of digital instruments, and the way entrenched these instruments turn out to be as soon as workers are educated to make use of them. One solely wants to take a look at Idox’s personal income between 2020 and 2021 to see that greater than half (£17.1m) got here from repeat prospects!
Idox has very lately rolled out a brand new platform for an area council in Scotland, designed to assist collate information on planning permissions and development inside the area. If this software program is adopted en-masse throughout the UK then I feel the share value might repeat final yr’s uptrend.
All investments include dangers and Idox is not any exception. One massive concern of mine is how small its revenue margins are. This can be right down to it being a comparatively new firm, nonetheless allocating capital to development.
However Idox is increasing, each abroad and domestically. If it might maintain onto its present contracts and proceed rolling out in new territories, then I might simply see the share value rising once more in 2022.
5 Shares For Attempting To Construct Wealth After 50
Markets around the globe are reeling from the coronavirus pandemic…
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James Reynolds has no place in any of the shares talked about. The Motley Idiot UK has no place in any of the shares talked about. Views expressed on the businesses talked about on this article are these of the author and subsequently could differ from the official suggestions we make in our subscription providers equivalent to Share Advisor, Hidden Winners and Professional. Right here at The Motley Idiot we imagine that contemplating a various vary of insights makes us higher traders.