Penny stocks are seen as high risk and potentially high reward investments. One penny stock pick I currently like for my portfolio is Speedy Hire (LSE:SDY). Here’s why.
DIY boom
Speedy Hire, often known as just Speedy, is a provider of tools and equipment hire. It has over 200 depots across the UK and Ireland with over 300,000 itemised assets available for hire. Its 46,000 plus customers include budding DIY enthusiasts as private customers as well as large construction and infrastructure firms.
The pandemic negatively affected a lot of industries but DIY and construction was booming. Many DIY enthusiasts emerged from lockdown and larger construction firms saw operations remain largely uninterrupted. This demand has led to a spike in performance for many construction and DIY-related stocks.
A penny stock is one that trades for less than £1. As I write, Speedy shares are trading for 65p. At this time last year, shares were trading for 4% more, at 68p. At current levels Speedy looks cheap to me based on recent performance and its outlook.
Why I like Speedy
- A notable rise in construction projects, commercial and personal, during the pandemic period as well as since reopening, is good news. Speedy can benefit from this rise in demand for its products and services. In addition, the UK government has committed to spending £100bn on infrastructure in the next few years. Speedy is in a unique position as larger firms tend to hire specialised tools and avoid the costly outlay of one-off purchases. Even many retail consumers now hire a tool for projects rather than buy it, use it once, and leave it in the garage to rust and take up space. I am guilty of the latter, unfortunately.
- Speedy’s recent performance confirms my assertions of higher demand for its products. A half-year report for the period ending 30 September, released in November, made for excellent reading. It reported that revenue had increased by over 28% compared to the same period last year. Profit increased by £14.1 compared to last year and net debt had decreased too. These positives led to an interim dividend of 75p per share. A penny stock with a dividend yield of over 2% deserves my attention.
- The outlook seems positive too. Analysts reckon the share price could go as far as 90p, which means there is room to grow based on current levels. In addition, Speedy has continued to move with the times and is undergoing a digital transformation to make its products and services more accessible.
Penny stocks have risks too
Speedy does have risks too. Rising inflation rising costs are a worry. Speedy has raised prices to offset this, but if it continues to do so, it risks losing customers. Furthermore, the current supply chain crisis could affect operations and performance as well as any investor returns too.
Overall I feel Speedy could be a good addition to my portfolio for the long term and I would buy shares at current levels. It has capitalised well on recent demand and has a long track record of performing consistently too. I know past performance is not always a guarantee of future performance, however. With infrastructure spending to continue and a dividend as well, Speedy looks like a good penny stock option for me right now.