I am on the lookout for penny stocks for my holdings. I do understand they often possess greater risk and volatility. On the flip side, they can also generate larger-than-usual returns. One penny stock I am currently considering is SIG Plc (LSE:SHI).
Building back up
SIG is a leading supplier of specialised building products throughout Europe. It supplies insulation and commercial interior products as well as exterior and roofing products. Supported by close to 7,000 employees, SIG has approximately 425 sites across the UK, Germany, Ireland, France, Poland, and Benelux.
A penny stock is one that trades for less than £1. As I write, SIG shares are trading for 43p. At this time last year, the shares were trading for 39p, which is a 10% increase over a 12-month period. The shares have increased from 33p to current levels in the past three weeks after positive full-year results were released earlier this month.
FY results and outlook ahead
SIG released positive full-year results earlier this month. It reported that revenue, sales growth, and gross margin all increased compared to 2020 levels. Most importantly, a loss in 2020 turned into an operating profit in 2021 of £41.4m. I believe the share price has rallied on the back of this.
I believe the outlook ahead for SIG is positive. SIG has a large presence and a vast array of products that could boost its performance in the years ahead. The European construction market is booming, and has sped up as part of post-pandemic recovery. This could result in SIG experiencing a rise in demand for its products, in my opinion.
The housing market, especially here in the UK, where demand is outstripping supply, is also good news for SIG, as its products will be required for house builders. I particularly like when a penny stock I am considering operates in a potential growth market.
SIG specialises in insulation products, namely its energy-saving foam-based technology. The current rise in energy bills tells me that demand for insulation products could rise exponentially. SIG could benefit from this.
A penny stock I’d buy
SIG’s performance and shares could come under pressure due to macroeconomic factors, currently in play. The two biggest concerns I have are about rising costs of raw materials and inflation, as well as the supply chain crisis. Rising costs mean profit margins are squeezed. This could lead to a rise in prices, which could drive customers to competitors. Finally, the supply chain crisis is one affecting many industries. A lack of supply of products could slow growth plans and performance ahead.
SIG currently looks like a cheap penny stock option for my holdings. The current risks involved are credible but I like to buy and hold for the long term. In my eyes, the long term could be fruitful with SIG operating with favourable market conditions in a burgeoning sector experiencing high demand for its products. I’d happily add SIG shares to my holdings.