One penny stock I’m considering for my holdings is Trifast (LSE:TRI). Could this small-cap be a good addition to my holdings for long-term growth and returns? Let’s take a closer look.
Industrial fastenings
As a quick introduction, Trifast is an engineering, manufacturing, and distribution business that specialises in industrial fastenings and components to many industries. It has a worldwide presence and operations in the UK, Europe, US, and Asia. Some of the sectors it serves include electronics, automotive, and domestic appliances.
It is worth remembering that a penny stock is one that trades for less than £1. As I write, Trifast shares are trading for 90p. At this time last year, the stock was trading above these levels at 140p, which equates to a 35% drop over a 12-month period.
A penny stock with risks
I believe Trifast shares have dropped in recent times due to macroeconomic headwinds. These headwinds include soaring inflation, the rising cost of raw materials, and the global supply chain crisis. All the issues noted could have a detrimental impact on Trifast’s operations, sales, and performance.
Rising costs of materials could impact Trifast’s profit margins. If costs are creeping up, sales prices and overall sales could be affected. This could then affect performance and returns too.
The global supply chain could see Trifast’s worldwide operations affected, especially from a manufacturing and then sales perspective. Again, this could affect performance and investor returns too.
The bull case and what I’m doing now
So to the positives then. I like Trifast’s business model in that it creates and sells vital components across a multitude of industrial sectors. Furthermore, it has a worldwide presence, which could help boost performance and investor returns. There is still room for it to grow as its primary source of revenue is Europe currently.
Next, Trifast has a consistent record of performance. I do understand that past performance is not a guarantee of the future, however. Prior to the pandemic, performance was robust but has dropped off slightly since. Full-year results for 2022 are due imminently and I will be reviewing them with a keen interest.
Trifast shares would boost my passive income stream through dividend payments. The stock’s current dividend yield stands at just over 2.5%. This is higher than the FTSE 250 average, which is just under 2%. It is worth remembering that dividends are not guaranteed and can be cancelled at the discretion of the business at any time.
Finally, Trifast shares look decent value for money at current levels on a price-to-earnings ratio of 15. There is every chance the recent share price drop has made the shares more attractive and they could bounce back to former highs after the current economic uncertainty subsides.
Overall I like the look of Trifast shares. This is primarily due to the company’s business model, presence, and profile, as well as the dividend payments on offer. I would add the shares to my holdings. I do expect some headwinds due to macroeconomic issues out of its control, however.