McBride (LSE:MCB) is a penny stock that I believe could be an excellent recovery play. Should I add the shares to my holdings?
Cleaning and hygiene
McBride is the leading European manufacturer and supplier of private label and contract-manufactured products for the domestic household and professional cleaning and hygiene markets. It sells over 1bn products a year, to 49 of the 50 top grocery stores in Europe.
So what’s the current state of play with the McBride share price? Well, a penny stock is one that trades for less than £1. McBride shares are currently trading for 34p. At this time last year, the shares were trading for 78p, which is a 56% drop over a 12-month period.
I believe McBride shares have fallen due to macroeconomic and geopolitical factors in recent months, but more on that later. These issues have affected performance.
For and against buying the shares
FOR: McBride is an established provider of cleaning products and solutions. This is in a time when the pandemic has created a new focus on hygiene. Currently, there are no signs of the pandemic ever fully disappearing. This means sales of cleaning and hygiene products should continue to increase, in my opinion.
AGAINST: Soaring inflation has led to a rise in costs of raw materials. The supply chain crisis has also affected many businesses. McBride is no different. All these factors have affected the balance sheet. There is no telling if this is a permanent change to the economy in terms of cost of materials and supply chain disruptions.
FOR: McBride has a consistent and long track record of performance. A penny stock with extensive trading information is not a common thing. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that it has reported consistent revenue for the past four years, close to £700m. Coming up to date, a half-year report released at the end of February reported inflationary pressures but I prefer to focus on the steps management took to combat these issues. McBride is undergoing a new pricing strategy that will help boost the bottom line as well as a cost saving initiative. The results of these initiatives will become clearer in the full-year results.
AGAINST: The other issue I have is that McBride may need to increase prices to continue its profitability and growth. Despite the macroeconomic outlook, raising prices can affect relationships and McBride may lose customers due to this. This would have a real impact on the bottom line and any returns I would hope to make.
A penny stock I’d buy
I do believe McBride is a good stock for longer-term recovery despite current pressures. The shares look cheap, on a price-to-earnings ratio of close to 3. Industry peers are predominantly operating on a ratio of close to 10.
I would be willing to add a small number of McBride shares to my holdings. I’d hold on to them for the long term, which is my investing mantra. I would expect to see growth in the longer term.