I don’t plan to stop seeking low-cost UK shares like these, however. There are plenty of rock-solid penny stocks out there to buy if one knows where to look. Here are three I think could deliver excellent returns for me in the near term and beyond.

Steppe Cement

Price: 36.5p per share
Market cap: £83.2m

Urbanisation rates in emerging markets like Kazakhstan are rising strongly. It’s a phenomenon that building materials supplier Steppe Cement is exploiting to full effect. Sales and profits at this penny stock leapt 13% and 53% respectively in US dollar terms last year.

The Kazakh construction sector is strongly growing thanks to financial incentives and favourable policies at government level. The consequent boost to housing and infrastructure building helped domestic cement demand rise almost a quarter (23%) year-on-year in 2021.

I’d buy Steppe Cement shares to capitalise on this theme. That’s even though political unrest in Kazakhstan creates some uncertainty looking ahead.

European Metals Holdings

Price: 42p per share
Market cap: £84.2m

I’ve been searching for top lithium stocks to buy as electric vehicle (EV) sales balloon. The silvery metal is a critical material in batteries that propel low-carbon cars around. And prices of the material are tipped to explode towards the end of the 2020s as supply shortages emerge.

All of this makes European Metals Holdings (LSE: EMH), which owns the huge Cinovec lithium project located in western Czechia, a stock I’m considering buying. This resource contains an estimated 7.39m tonnes of lithium carbonate equivalent and neighbours some of the world’s largest automakers.

I’m aware that problems in developing Cinovec could have an adverse impact on the company’s share price. But all things considered, I think European Metals has masses of investment potential.

Accrol Group

Price: 25p cents per share
Market cap: £79.7m

Trading at toilet tissue and kitchen roll manufacturer Accrol Group (LSE: ACRL) has been heavy-going over the past year. Soaring energy costs, raw material shortages and logistics problems have combined to toxic effect and prompted the release of multiple profit warnings.

Inflationary pressures remain a danger going forwards, of course. But I’m hoping that the penny stock has finally turned a corner. Most recent financials in mid-May showed the successful recovery of all input cost rises in a possible sign of things to come.

I also believe sales could balloon at Accrol as the cost of living crisis worsens. The business specialises in producing cheaper own-brand products, the sort that become more popular when shopping budgets come under pressure.

But Accrol is more than just a decent stock to own for these tough times. Market share growth has returned at the business more recently. And I’m tipping it to continue improving as the value retail boom of the past decade rolls on and savvy shoppers demand more bang for their buck.

Roll with it

Toilet and kitchen roll manufacturer Accrol Holdings (LSE: ACRL) could face a rough ride as rising paper costs hit profits. But it’s my opinion that falling consumer spending power could supercharge demand for its lower-cost private label products and, by extension, profits.

Real wages in the UK are falling at their fastest rate since 2014 because of rocketing inflation, recent data shows. Consumers will have to shop more smartly to make ends meet, which bodes well for Accrol. But the penny stock is not just a great buy for today. The importance of good value to consumers has been rising steadily for more than a decade now.

And Accrol has remained busy on the acquisition front to exploit this opportunity. Recent major acquisitions include Leicester Tissue Company and John Dale.

Penny stock nobility

I’d also consider buying Lords Group (LSE: LORD) following recent share price weakness. Like Accrol, this building materials supplier has also been busy with M&A action to increase its scale. Since the start of 2022 alone, it has spent more than £26.8m to bring builders’ merchant AW Lumb and roofing specialist Advance Roofing Supplies under its wing.

This will give Lords Group better geographic and product coverage and therefore better chances to capitalise on the the booming Repairs, Maintenance and Improvement (RMI) market in the UK. The penny stock has designs on driving revenues to £500m by 2024 (it clocked up sales of £179m in the first six months of 2021, latest financials showed).

Shortages of raw materials are a problem that could push up costs and result in empty shelves at its depots. However, the company’s exciting growth plans still make this an attractive UK share for me right now.

Off to market

In usual times, stocks that have exposure to the housing market are in danger when economic conditions worsen. This is hardly a surprise as a weakening buyer affordability and consumer confidence hits homes demand. So with runaway inflation hurting the domestic economy shares like OnTheMarket (LSE: OTMP) might be considered risky ones to own.

But the reality is that home sales continue to impress despite the worsening economic outlook. A mix of historically-low interest rates and fierce competition among mortgage providers means that borrowing conditions remain extremely favourable. Ongoing government support through Help to Buy also means that market activity remains strong, causing British house prices to continue to rise at breakneck pace.

OnTheMarket allows homebuyers to search for properties through its online platform. And in late 2021, it unveiled a website and brand revamp to help it better take on industry giants like Zoopla and Rightmove. Strong market conditions prompted the penny stock to increase profits expectations in recent months. And I fully expect trading here to remain impressive for the foreseeable future.

Poised to rebound?

The Accrol Group Holdings (LSE: ACRL) share price has sharply unravelled over the past year. The toilet and kitchen roll manufacturer’s lost 63% of its value in that time as rising input costs have smacked earnings and profit warnings have materialised.

But could now be a good time for long-term investors like me to invest? The problem of soaring input costs could continue well into 2022. However, the pace at which City analysts think earnings might rebound in the near future still makes it an attractive dip-buy, at least to me.

The number crunchers expect full-year earnings to drop 89% in the outgoing financial year (to April 2022). But they’re expecting profits to  rebound almost 500% in the period starting in May as costs normalise and sales to hospitality rebound. This leaves Accrol trading on a rock-bottom forward price-to-earnings growth (PEG) ratio of around 0.1

I like Accrol because its private label products sell much more cheaply than major brands like Andrex and Charmin. Thus it’s well placed to capitalise on the rising importance of value in the minds of modern consumers. The penny stock’s products can be found in most major supermarkets and discount retail chains, giving Accrol a massive opportunity to ride this retail trend.

Another penny stock I’d dip-buy

Foresight Sustainable Forestry Company (LSE: FSF) is a UK share you probably haven’t heard of. It only began trading on the London Stock Exchange in November and didn’t exactly get off to a flyer. It slumped in its first week of trading and, although recovering closer to its IPO price of 100p, it remains at a discount at 91p.

I think this stock could play an important role in Britain’s green economy, even though that disappointing IPO echoed the scepticism that still surrounds timber stocks. Foresight Sustainable Forestry Company raised £130m with its flotation, missing its target by a cool £70m.

It has two important roles to fulfil as the battle against climate change intensifies. It will help plant the trees needed to help the UK meet its net zero targets (the government plans to plant 75,000 acres of trees each year). And the timber it eventually produces will help service a growing market for sustainable building products. The trust reckons demand for timber products worldwide will quadruple between 2012 and 2050.

Investing in newly-created companies like this can be considered risky. After all, there aren’t stacks of trading reports available to help inform my investment decision. However, from what I’ve seen, I think this company has plenty of potential to deliver solid returns. I’ll do some more research here with a view to investing some of my own cash.

With this in mind, I’ve been screening for penny stocks that have high earnings growth forecasts. Here are two I’m considering buying in my portfolio.

The first high growth penny stock

Accrol (LSE: ACRL) is the first penny stock I’ve been researching. It’s a manufacturer of soft tissue paper that is used in various products such as toilet roll and kitchen paper. It came up on my stock screen as the earnings per share (EPS) forecast for next year is an impressive 44%.

There’s been a turnaround situation at Accrol since the current CEO joined in 2017. The company reduced headcount and the number of products it offered, and also streamlined its supply chain. The gross margin has been rising since 2019 when it was 14.7%. It reached 27.7% in its fiscal year 2021 (the 12 months to 31 April 2021). This, to me, shows that the turnaround is working. The share price has responded too, and has risen from around 7p in 2018, to a 35p at time of writing.

However, in a trading update for the full fiscal year 2022, Accrol said it’s been impacted by rising costs for its raw materials. The company has also seen additional distribution costs related to a shortage of HGV drivers, and this has reduced its achievable revenue growth for this fiscal year. These are key risks to consider before buying Accrol shares as I don’t see the end of the current global supply chain issues just yet.

I’m not sure there’s a strong economic moat in the business either. This might weaken profits in the future if competitors are able to undercut prices of Accrol’s products. So on balance, I’m going to sit this one out for now.

A stock to buy

The next penny stock is EKF Diagnostics (LSE: EKF), a medical diagnostics company. It manufactures point-of-care testing equipment for common infectious diseases, and products for use in a laboratory. The company has also been manufacturing and distributing Covid test kits during the pandemic.

I came across EKF Diagnostic on my screen as its EPS is forecast to grow by almost 55%. Indeed, in the company’s half-year report, net profit grew by a huge 122%. The outlook statement was even better, because management said the core business is trading well. They said that the full-year results will be “comfortably ahead of already materially upgraded management expectations”.

This says to me that EPS growth may even be larger than the current forecast of 55%. Therefore, there could be significant upside in the share price from here.

I have to keep in mind that EKF Diagnostics has benefitted from the increased need for testing due to Covid. This revenue stream should decline when the virus is under control. Nevertheless, the board said the business is capable of double-digit profit growth over the next three to four years. This is beyond any Covid-related revenue.

Gross and operating margins have been increasing in recent years, too. This is a sign of pricing power in the business, in my view. I’m strongly considering this penny stock for my portfolio.

Accrol Group has been battered by rising input costs in recent times. And today it noted that “pressures on the group’s raw material supply chains have been considerable with further tightening in recent weeks.” The penny stock said that rising energy costs, material shortages and general inflationary pressures have impacted pulp and parent reel production costs.

Furthermore, it said that a shortage of HGV drivers has pushed costs even higher while also restricting revenue growth.

Accrol warns on profits

Accrol said that while “these cost increases are successfully being passed on… there will be a time lag in passing on the full impact.” As a consequence the business reckons earnings for the full year to April 2022 will be lower than expected.

Revenues are now expected to rise 25% year-on-year, it said. And adjusted EBITDA is predicted to advance around 20%. Passing on of these higher costs, combined with operational efficiencies, will result in EBITDA margins similar to last year’s levels of 11.4%.

In other news Accrol noted that demand for discount goods in the UK hygiene sector “continues to see slow but steady improvement”. It added that its liquidity and cash flow position remains “robust.” Adjusted net debt is tipped to remain in line with market expectations.

This particular UK share allows e-tailers to provide personal shopping experiences to their customers using AI algorithms. And it’s doing a roaring trade as the virtual marketplace becomes more competitive and companies try to get an edge. Attraqt’s annual recurring revenue bookings ballooned 40% year-on-year in the six months to June.

Analysts at eMarketer think e-commerce market will continue soaring. They think it will account for 21.8% of all global retail sales in 2024, up from a predicted 19.5% this year. The sales opportunities for shares like Attraqt therefore look pretty compelling, at least in my view. Though I’m aware that this software share is loss-making. And any delays to moving into the black, whether through rising costs or disappointing revenues, could have a significant impact on the Attraqt share price.

Medical marvel

The cannabis market is another that’s tipped for big growth, over the next decade at least. Boffins at Fortune Business Insight think the market will be worth $97.4bn in five years. It should grow at a compound annual growth rate of 32.9% between 2018 and 2026. Kanabo Group (LSE: KNB), which makes cannabidiol-based products, could be well placed to exploit this boom.

As well as selling products such as oils, the business is betting big that its medical-grade VapePod vaporiser will make it big profits in the years ahead. The penny stock shipped its first batch of cartridges for the technology into the UK earlier this month. Lawmakers are becoming increasingly receptive to the use of cannabis to treat physical and psychological disorders. But the issue remains controversial and any U-turn by legislators would have a devastating effect on Kanabo’s operations.

A penny stock on a roll

Consumers are demanding more and more bang for their buck. The rise of discount supermarkets Aldi and Lidl over the past decade is the most obvious illustration of the booming demand for value. It’s a theme that is playing into the hands of facial tissue, and toilet and kitchen rolls, manufacturer Accrol Group Holdings (LSE: ACRL).

This stock manufactures private label products that are sold by almost every major British supermarket. And it is grabbing market share at an impressive rate. Accrol grew its share of the market to 15.9% in the last fiscal year (to April 2021) from 12% two years earlier.

I’m tipping Accrol’s sales to continue chugging steadily higher. However, it’s important for me to remember that rising raw material costs could have significant consequences for the company’s bottom line.

On a roll

Accrol Group Holdings (LSE: ACRL) is being hit by the cost of soaring pulp values and commodity prices right now. It’s a problem that might drag on too as the economic recovery kicks in and supply issues persist. But I think these problems are built into the toilet and kitchen roll manufacturer’s shares at current prices. Today the company trades on a forward price-to-earnings (PEG) ratio of 0.3.

A reading below 1 suggests that a share could be undervalued by the market. And I for one certainly think Accrol has a lot of promise looking ahead. Indeed, the company is rapidly gaining market share as the popularity of discount retail continues to rise. The penny stock grew its market share by three percentage points to 16% in the last fiscal year as consumers opted for cheaper products over the branded equivalents.

I also like this UK share’s ambitious spending programme to drive future earnings. It’s made two acquisitions since the end of last year for a combined £38.9m, including the significant purchase of Leicester Tissue Company in November. And Accrol is also taking steps to boost capacity at its manufacturing site in Leyland in early 2022.

Another top penny stock to buy

I believe that Ryanair (LSE: RYA) is another penny stock with a bright future. And so do City analysts if current forecasts are to be believed.

The Irish flyer swung to a painful operating loss of $839.4m in the last fiscal year (to March 2021) as the Covid-19 crisis grounded most of its fleet. But City brokers believe that Ryanair is set for a strong rebound. Operating earnings of €56.1m and €1.69bn are forecast for financial 2022 and 2023 respectively.

The risks to these forecasts are significant, of course, as the public health emergency drags on. Still, I’m not deterred by the possibility that near-term profits could suffer if travel restrictions persist. Firstly, Ryanair has plenty of financial headroom to help it fly through the pandemic. A mixture of extensive cost cutting and fundraising helped it exit the last financial year with €3.15bn worth of cash on the books.

These considerable resources should also allow Ryanair to ramp up capacity swiftly as the Covid-19 crisis gradually eases. They will also help the penny stock realise its plans of flying 200m passengers a year inside the next five years. By comparison it shifted 142m travellers back in 2019.

Make no mistake: the low-cost travel segment looks on course to keep growing at a tremendous rate. And Ryanair’s bold investment plans could turbocharge profits from a marketplace in which competition is set to be greatly reduced following the pandemic.

A penny stock that’s poised to fly?

I think Ryanair (LSE: RYA) is a highly-attractive penny stock buy if an investor is prepared to swallow a little risk. The dangers to UK airline shares are perhaps obvious as the public health emergency drags on and travel restrictions persist.

In the 12 months to March, this particular operator moved just 27.5m passengers, down from 149m a year earlier. Worryingly, Ryanair has warned that traveller numbers in this fiscal year are leaning towards the lower end of a guided 80m-120m too. This is due to the third wave of coronavirus infections currently sweeping across the company’s core European regions.

More downgrades could be in store too as the slow vaccine rollout on the continent continues and infection numbers subsequently continue to rise.

As a long-term investor though, I think Ryanair still has plenty to offer me. I buy UK shares with a view to owning them for at least a decade. And over this sort of timeframe, I think the Irish flying ace will deliver excellent shareholder returns. First and foremost, Ryanair has a big wad of cash to help it ride out the crisis.

The rate at which it is burning through cash continues to come down, thanks to strict cost cutting too. Not only should this assuage any fears over its survival, but its strong balance sheet should help the penny stock ramp up capacity when the pandemic finally passes.

The market outlook for cheap plane tickets remains extremely bright over the medium to long term. And Ryanair has the tools to make the most of this exceptional opportunity.

On a roll

I’m also tipping Accrol Group Holdings (LSE: ACRL) to thrive despite the uncertain economic environment. Without labouring the point, it’s my opinion that this UK penny stock — which manufactures toilet rolls and kitchen rolls — has one of the most stable businesses out there.

This isn’t the only reason I’m a fan, though. Private label manufacturers in these markets are grabbing market share at a heck of a pace from branded manufacturers as value becomes more and more important. And Accrol is expanding to make the most of this opportunity. The company acquiring wet wipes producer John Dale earlier this month for £3.9m.

A word of warning though. Paper prices have soared over the past year. It’s a problem that could seriously eat into this penny stock’s margins now and in the future.  On top of this, Accrol also sells its product to a small number of key customers. This leaves it in danger of a severe revenues shortfall if one of these clients opts to switch supplier.

Initially, the company’s outlook appeared bright. Demand for its paper products, which includes toilet paper, kitchen towels and facial tissues was rising with revenue for the year to April 30 up 14.2% year-on-year and EBITDA up 6.8% to £16.1m. A 4.3% dividend yield was also on offer. 

Unfortunately, two months after publishing its figures for the year to April, the company stunned the market by warning on profits, announcing a previously undisclosed legal battle with the Health and Safety Executive (HSE) and suspending its shares. 

From bad to worse 

Since the suspension, the company’s prospects have gone from bad to worse. It pleaded guilty to a single health and safety regulatory offence arising out of an incident whereby an employee sustained a severe injury to the top of his right index finger. Fines from this incident could be between £550,000 and £2.9m. 

Meanwhile, the cost of the pulp the company uses in its products has jumped by nearly 41% since the beginning of the year, and Accrol has struggled to pass higher prices on to customers — a sudden reversal from the group’s past cash generation. 

With a hefty legal bill to pay, costs spiralling and margins contracting, it has been forced to ask shareholders for more cash to keep the lights on. Today, along with the lifting of its suspension, it announced that it is planning to raise £18m by way of a placing to meet working capital requirements at a 60% discount to the pre-suspension price. The company is placing 36m new shares at 50p. 

Is the outlook improving? 

Accrol’s management believes that the £18m placing will be enough to return the company to business as usual. The good news is that some customers are now accepting price hikes, which has taken some pressure off the firm. 

As well as reinforcing the balance sheet and hiking prices, management is also looking to cut costs by around 6% by reducing the employee headcount by 89 and cutting the number of products offered. These efforts are expected to return the business to profit on an EBITDA basis for the year ending April 2019.

So, it has a plan in place to get back to growth and profitability. However, I think it’s going to take a lot more work for Accrol to regain investors’ trust in the business. The firm has effectively imploded over the past six months, and the speed of the implosion has been staggering.

What’s more concerning is the way management has treated investors. There was no prior disclosure of the HSE investigation before the suspension, and in a trading update published on September 7, it made no mention of the rising price of pulp compressing margins, even though today management claimed that these costs have been proving to be a headwind since the beginning of the year. 

The bottom line

Overall, I’m not buying Accrol after today’s declines. The firm’s performance since it became a public company has been extremely disappointing, and it looks as if the business is going to struggle to return to growth in the next few years. There are better buys out there. 

Accrol also has the benefit of a very straightforward business model as it imports reels of paper in bulk and then converts them to toilet roll, kitchen roll and facial tissues at its Blackburn manufacturing plant. The company produces some own-brand products but the vast majority of its output is private label goods for major retail chains. Its core customer base includes discounters, which has kept growth high in recent years as they have taken market share from the big four grocers.

With over 50% market share in the discount space, Accrol is far and away the largest player in this growing market and is rapidly expanding its manufacturing facilities to keep up with this growth. In the year to April revenue rose 14.2% year-on-year (y/y) to £135.1m and EBITDA increased 6.8% to £16.1m

Increasing cash flow and year-end net debt of just £19m allowed management to both invest in new warehousing and production facilities as well as increase shareholder returns. Full-year dividends totalled 6p and were covered twice by adjusted earnings per share of 12p. At its current share price this works out to a 4.3% dividend yield.

On top of this very nice dividend the company’s shares trade at just 11.9 times forward earnings. Although the company’s profitability is exposed to global movements in paper reel pricing, this valuation looks quite attractive given the group’s solid growth prospects, healthy balance sheet and high income potential.

Higher risk, but higher reward?

For more risk-hungry investors, discount retailer Shoe Zone (LSE: SHOE) may present an intriguing option. The company’s shares are currently valued at just 9.8 times forward earnings and last year’s regular dividend of 10.1p represents a whopping 6.4% yield. In addition to the regular dividend there was also a special dividend of 8p that management intends to repeat whenever year-end cash balances exceed £11m.

The risky part of investing in Shoe Zone is that aside from facing the same sector-wide challenges as other retailers, the company is executing a strategy of shrinking to grow profits. This involves closing small, low-margin stores and opening up a smaller number of big box stores that cut down on rental, staffing and logistics costs. On top of this, management is also pushing to increase margins by directly sourcing product straight from overseas factories.

In the half to April the year-end store count fell from 518 to 504 y/y as part of this plan as the company closed small and medium-sized stores to trial new big-box outlets that are trading very well and will be rolled out across the estate. However, this did lead revenue to fall from £74.6m to £72.9m y/y although gross margins improved a full 170 basis points to 62.8%.

During this period the weak pound did cause underlying pre-tax profits to fall from £1.7m to £1.3m y/y but analysts still expect full-year earnings to more than cover dividends payouts. Shoe Zone is a risky income option but yield-starved investors who aren’t risk-averse may find it worth digging into.