Penny stocks carry significant risk. One contrarian option I am considering for my portfolio right now is Revolution Bars Group (LSE:RBG). Leisure stocks took a beating since the pandemic began due to restrictions and some are still avoided by investors.
A time to forget
Revolution Bars Group runs 66 venues and employs 3,000 people throughout the UK. Its growth story is an admirable one. Two friends decided to open a bar just outside of Manchester in 1991, and it has grown into a successful chain of bars today and a bar-goers staple!
Penny stocks are those that trade for less than £1. As I write, shares in Revolution are trading for 22p. This time last year, shares were trading at similar levels, for 23p. The share price has meandered up and down throughout the past 12 months but my interest is in the longer term with Revolution. Shares are still below pre-crash levels.
Why I am considering RBG for my portfolio
- The pandemic led to large-scale closures of many leisure venues including bars, pubs, clubs, and restaurants. This decimated firms like Revolution. The pent-up demand and leisure spending that the UK is now experiencing will benefit Revolution. I feel like there is a newfound appreciation for a night out after the past 18 months. Leisure spending has been growing at twice the rate of retail spending in recent times. This bodes well for Revolution in my opinion.
- Last week, Revolution announced its preliminary results for the 53 weeks ended 3 July 2021. It also noted Q1 2022 progress too, which was encouraging. Overall, the signs solidify my belief that pent-up demand and leisure spending will boost Revolution and it could surpass pre-Covid levels. Its 2021 results weren’t great but this was to be expected. It took steps to conserve cash and has a robust balance sheet. More importantly for me, the first 14 weeks of 2022 revenue exceeds the total achieved in the whole of 2021! When the update was released, revenue for 2022 to date stood at 137% of 2021 levels.
- Revolution also had a decent track record of performance prior to the pandemic. I am aware that past performance is not a guarantee of the future but I review it nevertheless for penny stocks and established stocks alike. I can see that revenue was increasing year on year between 2017 and 2019 before the pandemic struck. If Revolution can steer clear of further roadblocks linked to the pandemic and macroeconomic pressures, I believe this type of year-on-year growth could occur once more.
Penny stocks carry risks too
There are risks with Revolution too, of course. Firstly, if further restrictions were to force closures, Revolution’s trading and performance would be severely affected once more. Furthermore, macroeconomic issues such as rising inflation and costs as well as the supply chain crisis could affect operations. This in turn could affect performance and its bottom line too.
I like to look for contrarian penny stocks that others may be avoiding. As a Foolish investor, I invest for the long term, which means I am not averse to some short-term pain. With that in mind, I would invest £500 in Revolution at current levels. I believe over time it could return to profitability and growth and be a good small-cap addition to my portfolio.