With the stock market having a bit of a tantrum, plenty of penny stocks have seen their valuations get wiped out relatively quickly. In some cases, the rapid drop in price is justified. But now that prices have sunk, are there exciting buying opportunities for my portfolio? Let’s take a look.
A leader in hydrogen penny stocks
ITM Power (LSE:ITM) was the darling of the penny stocks community in early 2021, reaching higher than 700p per share. Today, popularity has dwindled, with shares now standing at around 278p.
As a reminder, this business is a designer and manufacturer of specialised electrolyser technology that can extract hydrogen from water without producing any greenhouse gas emissions. Needless to say, that’s significantly better for the environment versus the traditional method of capturing the element from hydrocarbons (fossil fuels).
I’ve actually explored this business numerous times, complimenting its seemingly impressive technology. However, my primary concern was the valuation. And looking back, it seems I was right to be wary. But now that the stock has more than halved, is it a good time to add this business to my portfolio?
Maybe. Even with the recent tumble, the stock is by no means cheap. Over the last six months, revenue came in at £4.1m. And while that is almost the same as the £4.3m generated in the whole of its 2021 fiscal year, I feel there’s a long way to go before this penny stock can justify its £1.65bn valuation.
Therefore, even though this may later turn out to be a bargain price, I’m keeping ITM Power on my watchlist for now.
Exploring opportunities in the FTSE 100
While the FTSE 100 may be home to some of the largest businesses in the UK, that doesn’t mean they’re immune to double-digit declines. And recently, the index has gained quite a few penny stocks as a consequence.
That’s certainly true for ITV (LSE:ITV), with its share price falling by nearly 50% over the last 12-months to around 70p today. What happened?
There are undoubtedly multiple factors at play. But it seems investors are a bit concerned over management’s new strategy – most specifically, the cost of deploying it. The group aims to double its digital revenue by 2026 by launching a new ad-supported streaming service called ITVX. Unfortunately, the capital investment required stands in the billions, with £1.23bn being invested this year, followed by £1.35bn each year thereafter.
Investing such vast amounts of capital into ITVX obviously comes with considerable risk. And some analysts believe the leadership team is just setting money on fire due to the immense level of competition already in the streaming arena.
However, personally, I’m cautiously optimistic. The company has a track record of creating popular content. And with shares falling so sharply into penny stocks territory, the P/E ratio now stands at 7.3. That, to me, looks like a bargain. Therefore, I am considering adding a small position to my portfolio today.