I see the recent declines in UK stock prices as opportunities to snap up good companies at relatively low prices. Here are three UK shares that I would buy this week for my Stocks and Shares ISA.

UK pet boom

CVS Group (LSE: CVSG) operates veterinary practices, laboratories, crematoria, and an online retail business. This £1.25bn market capitalisation company has managed to grow its revenues and profits by 15% and 17%, respectively, on average in each of the last five years. That’s a fantastic track record.

The UK’s pet population has almost certainly increased over the last couple of years, and CVS could see a prolonged growth in its revenues as a result.

In March 2020, the Competition and Markets Authority ruled that CVS’s purchase of a smaller vet chain reduced competition. CVS ended up selling the company and saw its share price tumble. The specifics of the ruling will make expansion in the UK small-animal vet field trickier to navigate. However, expansion into Europe and large-animal practice is underway, which should prove fruitful. The company also appears to be dealing fairly well with the industry-wide staff shortage.

A UK software share

Learning Technologies (LSE: LTG) provides in-person and online education and talent management services to corporations in the US (70% of business), Europe, and the UK.

A good chunk of this £810m market cap enterprise’s revenues come through multi-year software contracts. Many corporations must deliver training to satisfy regulations, which benefits Learning Technologies.

After making losses for much of the last decade, Learning Technologies swung to a profit in 2018 and has stayed in the black ever since, including during the pandemic. Annual revenue growth has averaged 56% over the last five years.

But I wonder why the company’s five-year average operating margin of 5% is so low, especially for a software-focused company. Also, the company raises funds from shareholders regularly, potentially diluting future returns, and increased its total long-term debt pile from £11m in 2020 to £188m in 2021.

Have cake and eat it

With a market cap of £110m, Finsbury Food (LSE: FIF) —  which makes bread and cakes for retailers (mainly supermarkets) and food service companies, like coffee shops – is the smallest of my three UK shares.

Its revenue growth has been somewhat lacklustre at an average of 2.6% per year over the last five years. But it is impressive how management has managed to preserve operating margins through some tough times, with supply-chains creaking and inflation soaring. It appears to make the kind of treats that customers love, even if they are experiencing tough economic times.

There are plenty of growth opportunities to pursue via organic growth or acquisitions. Gluten-free bread is one new area that looks fruitful, and management has been talking up artisanal bread.

However, I do note that management seems keen on financing acquisitions through debt. The health of this company’s balance sheet is something I should monitor closely.

Profits could double in two years

My first penny stock is corporate currency exchange specialist Argentex Group (LSE: AGFX). This AIM-listed stock only came to market in 2019 and its performance has been a little inconsistent.

However, the latest accounts suggest a strong return to growth. Pre-tax profit rose by 22% to £3.3m during the six months to 30 September, while the currency value handled by Argentex rose by 67% to £8.3bn.

One downside to this business is that it’s a competitive sector, and it’s hard for outside investors to get much visibility on future profits.

However, Argentex has an operating margin of nearly 30% and is generating plenty of surplus cash. Analysts expect profits to double from £6m in 2021 to £12m in 2023.

Another attraction for me is that CEO Harry Adams owns 12% of the shares, so has plenty of skin in the game. I also think Argentex looks cheap on eight times forecast earnings, so this penny stock is on the buylist for my portfolio.

A fashion comeback?

Sales have doubled at fashion retailer Joules Group (LSE: JOUL) since the company listed on the London market in 2016. Unfortunately, the group’s profits slumped last year after the business was hit by cost increases relating to wages, warehousing and transport.

Joules’ share price has fallen by 75% over the last 12 months. The big risk is that Joules won’t be able to rebuild its profit margins, but this sell-off seems harsh to me.

Unlike some struggling retailers, Joules’ sales have kept on growing. Revenue for the half-year to 28 November rose 35% to £128m. This tells me that demand for Joules’ products is still strong.

I think CEO Nick Jones should be able to get costs under control. If I’m right, then profits could bounce back quickly. Broker forecasts put Joules on a forecast P/E of eight for 2022/23. I’d buy this turnaround stock for my portfolio at this level.

A penny stock for cake lovers

My final share is one I already own. Bread and cake producer Finsbury Food Group (LSE: FIF) makes a wide range of fresh products stocked by supermarkets in the UK and parts of Europe.

Finsbury’s share price has fallen by more than 30% since then end of 2021. That’s left the stock trading on a potential bargain rating of just six times forecast earnings.

Although management admits the company is facing pressure from rising food, energy and wage costs, Finsbury has a decent track record of managing these issues.

Finsbury’s sales rose 9% to a record £166.5m during the first half of this year. Although adjusted earnings fell 18% to 3.6p per share, City analysts expect full-year earnings to be unchanged from last year at 9.1p per share.

I think there’s scope for Finsbury shares to re-rate quite quickly, especially if price pressures ease. I’m continuing to hold this penny stock in my ISA as we enter the new tax year.

I always aim to add to my portfolio during market corrections. Although it’s uncomfortable to see share prices falling so sharply, over the years these situations have created some of my best long-term buying opportunities.

A bargain retailer with a 7% yield?

The first company I’m interested in is sofa and carpet retailer SCS Group (LSE: SCS). This stock hit an all-time high of more than 300p in August last year, but has since fallen more than 40% to around 185p.

I’m surprised by the size of this fall. SCS has continued to trade well through the winter, even as life has returned to normal and travel and experience spending has increased.

In its latest update, SCS reported a 17% increase in orders for the six months to 29 January, compared to a year earlier. Helpfully, the company also included a comparison with the same period in pre-pandemic 2019/20. This showed new orders are now at the same level as they were before Covid-19 started to cause problems.

The main risks I can see at this time are rising prices and pressure on incomes that could cause people to cut back on home spending. As we head into the main holiday season, people might also be planning trips abroad rather than buying new sofas.

Even so, I think that SCS now looks too cheap for me to ignore. The latest guidance from the firm is that profits should be in line with expectations. That prices the shares on less than seven times 2021/22 forecast earnings, with a 6.9% dividend yield. I’m tempted to add this penny stock to my portfolio at this level.

A defensive business in uncertain times

One area where our shopping habits don’t change much in difficult times is the supermarket. My next pick, Finsbury Food (LSE: FIF), produces a wide range of bread and cakes for retailers across the UK.

Finsbury produces staple everyday items and affordable treats. In my view, shoppers are unlikely to ditch them from their shopping trolleys, even if prices rise slightly.

I think pricing power could be an important consideration over the coming months, unfortunately. The war in Ukraine has pushed up energy costs and commodity prices, notably wheat, which is a key ingredient for Finsbury.

Fortunately, I think Finsbury is in good shape to handle inflationary pressures. The company says it was able to pass on price increases during the second half of 2021. This is expected to result in higher profits in early 2022.

Although this improvement may now be smaller than originally hoped for, I think Finsbury’s share price already reflects this risk. The stock has fallen by nearly 20% since the start of the year, leaving the company trading on a modest eight times forecast earnings. There’s also a useful 3% dividend yield, which looks safe to me.

I already own Finsbury shares, but I’d be comfortable buying more at current levels.

A play on gold

The price of gold has risen 7% over the last month to more than $1,900 per ounce. Although I’m not generally a gold investor, I can see the attraction of owning the metal during uncertain times.

I’m thinking about adding some exposure to my portfolio by buying shares in pawnbroker H&T Group (LSE: HAT). H&T is exposed to the price of gold through jewellery retail and its scrap gold business, which operate alongside its core pawnbroking business.

One risk here is that H&T’s operations have quite a lot of moving parts. Profits from trading gold might rise, but other areas of the business may underperform. Even so, I think this company is well positioned to deliver an improved performance in 2022.

The company says that gold trading volumes improved during the final quarter of last year. Second-hand watch and jewellery sales “exceeded expectations” over the Christmas period, with retail sales in general now back to pre-pandemic levels.

Broker forecasts suggest H&T’s earnings will rise by as much as 50% this year, with further gains pencilled in for 2023. These estimates price its shares on nine times 2022 earnings, with a potential dividend yield of 4.4%. I’m tempted to buy a few for my portfolio.

A penny stock Peter Lynch would buy?

In his book ‘One Up on Wall Street’, famed US growth investor Peter Lynch advised investors to buy what you know. He pointed out examples of high street brands that had gone on to become huge successes, long after they appeared in his local neighbourhood.

I think this remains a useful tip today. One consumer stock I’m considering is discount retailer Shoe Zone (LSE: SHOE). This group sells through stores and online and is focused on the cheaper end of the footwear market.

Although Shoe Zone sells some branded names, the majority of its stock is made directly for the firm by contract manufacturers. This locks in attractive profit margins, despite Shoe Zone’s low pricing points. I’ve bought a few pairs of shoes from my local store and have no complaints, for the price.

I should point out that Shoe Zone survived a near-death experience early in the pandemic. The company’s online presence was lagging and a number of its stores became unprofitable.

One risk I can see is that the group’s recovery will hit a limit and that profits will come under pressure again from rising costs. I believe much of the firm’s stock is made in China so increased shipping costs and delays could cause problems.

However, so far, I think founders John and Anthony Smith have delivered an impressive turnaround. They’ve improved online performance, closed 50 unprofitable stores and updated others to more profitable formats.

Shoe Zone’s share price has doubled since October. The shares aren’t a screaming bargain anymore, but I still think they look good value. A price/earnings ratio of 12 doesn’t seem too high to me for a business that has been very profitable in the past. I’m tempted to start buying this penny stock for my portfolio.

Zaven Boyrazian: Bioventix

Bioventix (LSE:BVXP) is a specialist producer of monoclonal antibodies. These are an essential ingredient for performing blood tests when diagnosing a patient. It’s undoubtedly a niche product but remains in high demand as revenues have consistently grown by double digits over the last five years.

Recently, the stock has taken a hit as hospitals have prioritised spending in areas dealing with Covid-19. Consequently, the group’s bottom line has suffered for it. But, with the vaccine rollout making good progress and the world adapting to the pandemic environment, these disruptions may soon be coming to an end.

As such, I think this could be an excellent addition to my portfolio.

Zaven Boyrazian does not own shares in Bioventix.

Ed Sheldon: Calnex Solutions

My top British small-cap stock for January is Calnex Solutions (LSE: CLX). It’s a leading provider of testing and measurement services to the telecommunications industry.

Calnex looks well placed to benefit from the global telecommunication industry’s upgrade to 5G technology. 5G is ultimately the key to many of the exciting new technologies we keep hearing about such as self-driving cars and remote surgery. Networks will need to be tested thoroughly in order for these kinds of technologies to go mainstream.

One risk to consider here is the ongoing semiconductor shortage. This could cause disruption. However, with the stock trading on a P/E ratio of less than 25, I think the risk/reward proposition is favourable.

Edward Sheldon owns shares in Calnex Solutions.

Roland Head: Finsbury Food

My small-cap pick for January is bakery firm Finsbury Food (LSE: FIF). This group supplies supermarkets and also sells under its own brands.

Finsbury has been going through a turnaround period, but now appears to be trading well. Earnings rose by 15% last year and brokers expect growth of 26% for the year ending 26 June.

Rising costs are a concern and supermarkets will always be tough customers. But I’m impressed by Finsbury’s recent performance. I think the stock still looks good value at under 10 times forecast earnings. I hold Finsbury shares and would buy more.

Roland Head owns shares of Finsbury Food.

Rupert Hargreaves: Michelmersh Brick Holdings

My top small-cap is Michelmersh Brick Holdings (LSE: MBH). The specialist brick manufacturer looks set to report a bumper year of growth for 2021, which could underpin further development in the year ahead.

The firm has no debt and a cash-rich balance sheet, suggesting that it has the financial headroom to support its growth ambitions this year. There is also room for shareholder returns. Michelmersh currently supports a dividend yield of 2.5%.

Inflation and competition are the two primary risks the business will have to overcome going forward. Despite these challenges, I would buy this small-cap stock today.

Rupert Hargreaves does not own shares in Michelmersh Brick Holdings.

G A Chester: B.P. Marsh & Partners 

B.P. Marsh (LSE: BPM) is a specialist investor in unquoted, early-stage financial services businesses that are in need of growth capital. 

Marsh looks for strong management and business plans. It takes a minority equity stake (typically 20%-40%), and aims to be a supportive, long-term partner. It works with management to grow the business’s value, ultimately towards a profitable exit via a public flotation, trade sale or other route. 

It has a long history of delivering value for shareholders through net-asset-value (NAV) appreciation and dividends. The shares are currently trading at a 20%+ discount, and I’m expecting a further NAV uplift in an early-February trading update. 

G A Chester has no position in B.P. Marsh & Partners.

Niki Jerath: Zephyr Energy 

For January, I’m looking at Zephyr Energy (LSE:ZPHR). This has oil and gas interests in Utah, Colorado and North Dakota.  

As oil and gas prices increased during 2021, its shares surged by over 600%. Although year-to-date, the stock is down around 2% due to worries about the Omicron variant. 

That said, its Paradox Basin project, in Utah, shows a lot of promise for 2022 and it has a pending deal in North Dakota, which was delayed last year. 

I could be wrong, but if the transaction goes ahead, I expect the share price to see a jump. 

Niki Jerath does not own shares in Zephyr Energy

Royston Wild: Card Factory 

I think Card Factory (LSE: CARD) is a small-cap stock whose eye-catching all-round value merits serious attention. The card and greetings retailer trades on a forward P/E ratio of below 6 times. It sports a mammoth 6.1% dividend yield as well. 

I like Card Factory for a number of reasons. Its strategy of selling products at low prices puts it in good shape to ride the value retail revolution. Recent investments in digital will allow it to make money during the e-commerce boom. I also like Card Factory’s focus on a more-defensive part of the retail market. We don’t stop celebrating birthdays, Christmas and other special occasions when times get tough, right? 

Royston Wild does not own shares in Card Factory.

Paul Summers: Cake Box Holdings

At 25 times earnings, shares in Cake Box Holdings (LSE: CBOX) certainly aren’t cheap. That said, the company’s fundamentals help justify this valuation. Returns on capital and operating margins are consistently high and there’s net cash on the balance sheet. CEO Sukh Chamdal also owns almost 25% of the company, which should mean that his interests are aligned with those of other investors.

Having already climbed 70% in the last year, share price growth may moderate in 2021. However, this looks like the sort of quality minnow I’d be comfortable holding a stake in for years rather than months.

Paul Summers has no position in Cake Box Holdings

Andy Ross: Property Franchise Group 

Shares in Property Franchise Group (LSE: TPFG) bring together an attractive combination of growth and income. Over three years the shares have gone from 120p to around 314p. Historic share price growth then has been good. The dividend yield is currently around 3%, but with decent levels of dividend cover, as well as earnings growth, I’m sure the dividend can keep growing.  

As a franchising operation, the business has high operating margins and returns on capital. For me, this makes Property Franchise Group a top British small-cap stock and I’ll likely be adding more, especially if the share price dips again.  

Andy Ross owns shares in Property Franchise Group.

I don’t think this rating properly reflects Finsbury Food’s exceptional progress in overseas territories, for one. Revenues from its European markets jumped 13.4% year-on-year during the 12 months to May. I also like the investment its making in machinery, such as boosting artisan bread capacity by half to capitalise on soaring demand for fancy breads. Finsbury Food trades at 96p per share right now.

Another penny stock on my radar

There’s no shortage of top housebuilding shares that offer great value today. One that’s attracted my attention is Inland Homes (LSE: INL). At 53p per share, the construction business trades on a P/E ratio of below 8 times. It’s not the sort of valuation I think reflects the strength of trading here recently.

Inland Homes enjoyed record profit of £195m in the 12 months to September, financials this month showed, while its order book for partnership housing leapt 56% year-on-year to £164.7m.

It’s possible that booming inflation in Britain might prompt severe interest rate hikes by the Bank of England. This could, in turn, damage broader homes demand as buyer affordability comes under the cosh.

There’s also the danger that severe supply chain issues hitting the building materials market could persist. This could cause sustained cost pressure and even damage production rates if the company fails to source product. Still, it’s my opinion that these risks are baked into Inland Homes’ rock-bottom valuation.

A top renewable energy stock

Grabbing a slice of the renewable energy market is also on my investing wishlist today. The COP26 climate summit this month underlines how investment in green power looks set to explode. And as a share investor this gives me the chance to make some decent profits while helping to fight the climate crisis.

US Solar Fund (LSE: USFP) is a penny stock I’m considering buying to ride this phenomenon. As the name implies, this UK share invests in solar farms that are located in the States, more specifically in North Carolina, California, Utah and Oregon. This gives it an edge against many other renewable energy stocks.

US legislation surrounding green energy is also some of the most favourable towards operators like this anywhere on the planet.

A word of warning however.  Generating energy from the sun can be extremely unreliable, even in the US. Maintaining solar farms can also be an expensive business and this can eat into profits. But despite these risks, I still think US Solar Fund could be a great share to buy and own for the next decade. Today, the company trades at 72p per share.

There have been rare causes for cheer, however. The following penny stocks, for example, have all risen  in value over the past month. Here are three I’d spend £500 on each right now.

More forecast-beating trading news

The HSS Hire Group (LSE: HSS) share price has risen 9% during the past month. This means that in the last 12 months it’s gained 28% in value. The business hires out tools and construction equipment and is thus highly cyclical. Yet the strength of trading here has allowed its share price to rise despite fears over the British economy. The penny stock hiked its earnings expectations yet again in half-year financials released last month.

Trading at HSS Hire would likely cool again if soaring inflation chokes off the economic recovery. But the business has made huge strides to improve its balance sheet, which should help cushion it against any fresh trading problems. The sale of its All Seasons Hire division last month has pulled its leverage down to just 1x. Its improving financial position will also help it to execute its long-term growth plans.

Sporting great

Science in Sport (LSE: SIS) is also managing to defy the broader gloom enveloping UK share markets. The protein shake manufacturer has risen 2% in value over the past month, taking total 12-month gains to 111%. Sales of its products are booming as consumers’ fitness focus boosts demand for its nutritional products. Revenues at the penny stock jumped 24% in the six months to June, financials last month showed. And encouragingly, new product innovations made up a quarter of this total.

The sports supplement market is one that looks set for further stratospheric growth too. Analysts at Grand View Research think it will be worth $34.5bn by 2028, more than double its size today. I think Science in Sport is a great way to ride this phenomenon despite the threat of intense competition to future sales.

Another penny stock on a roll

Like Science in Sport, Finsbury Food Group (LSE: FIF) has also risen 2% in the last month. Consequently the bread, cake and morning goods manufacturer is up 71% on a 12-month basis. I think its role in a defensive sector (we need to eat regardless of economic conditions, right?) makes it a top buy for these uncertain times.

As a long-term investor, I’m excited by the impressive progress Finsbury Food is making on foreign shores. Sales outside the UK account for just 12% of the group total today. But the rate at which they’re growing demands serious attention. Up 13.4% in the 12 months to June, this was far better than the 1% increase reported on home turf. I’d buy this penny stock despite the threat that rising Covid-19 cases poses to its foodservice business.

Finsbury Food

Bakery manufacturer Finsbury Food (LSE: FIF) is first up. The company produces a range of cakes, bread and snacks. Its share price has been in fine form over the last year, rising 54%. Based on its most recent trading update, I’m inclined to think this might continue. 

Back in July, FIF announced that revenues in the second half of its financial year had climbed 9.1%. That’s despite its foodservice division still being impacted by Covid restrictions. Trading overseas was also markedly better. Revenues here jumped 27.4%, due in part to lockdowns in Europe beginning earlier.

All told, Finsbury believes recent improvements in trading will allow it to eventually report revenues of £313.3m for the full year to 26 June. That’s higher than analysts were expecting. It also brings sales back to pretty much where they were before the pandemic took hold.  

Factor in this news with a valuation of just 10 times earnings and I suspect the shares could rise above £1 soon. That said, rising cases of the Delta variant could still prove problematic. So, while I would be comfortable buying today, I also don’t see this as a risk-free investment.

Sureserve

Shares in energy support services firm Sureserve (LSE: SUR) could also reach £1+ soon, I believe. Involved in the construction and maintenance of services to homes, schools and commercial buildings, its valuation has more than doubled in 12 months. 

I expect more to come, especially after the announcement today that two of its subsidiaries have extended their contract with affordable housing care provider The Guinness Partnership. This is for a minimum of five years and could actually last for a decade. Assuming the latter, SUR has estimated this agreement will bring £140m in sales revenue.  

Like Finsbury, shares in Sureserve look a good deal at 14 times forecast earnings. One thing worth noting, however, is the ‘free float’. The fact that only 68% of the company’s stock is trading on the market could make for a rollercoaster ride. It might only take a bit of buying or selling to make the share price move violently. 

Again, I see this as a cautious buy for my portfolio.

Record

A final company whose time as a penny stock may be up shortly is currency manager Record (LSE: REC). Its share price has soared 160% over the last year to almost 91p a pop.

I think REC can gain another 10% or so in 2021. In July, the company announced that its new financial year had “started well“. Assets under management equivalents rose by 5% in Q1, supported by more net inflows and a new fund launch. 

However, REC has a smaller free float than even Sureserve (just 30%). Again, this could be beneficial if the company does all the right things. However, the opposite is also possible. While not exactly overpriced, REC’s valuation is also higher than the other penny stocks mentioned at 18 times earnings.

Notwithstanding these points, I’d still buy. The company’s balance sheet looks solid and returns on capital have been consistently excellent. Both are qualities I look for. 

Indeed, investing in small firms can be incredibly risky. I think concentrating on already-established businesses is an easy way to reduce risk.

It’s also easier to see how an established business has fared in different market environments. I can’t do that with a newer enterprise.

Penny stocks on my watchlist 

Finsbury Food (LSE: FIF) is a good example. The baker, which produces cakes, bread and bakery snacks, has been a public business since 1995. 

Unfortunately, growth has stagnated during the past five years, but that’s set to change in the next two, according to analysts. City analysts have pencilled in a net income of £11.2m for 2021, the highest level in over six years. 

I’m always wary of City estimates, but it looks as if the firm is well on the way to hitting this projection. In a trading update published in May, the company announced that profit before tax for its 2021 financial year would be “no less than £15m.” That’s above projections. 

I think the company has the potential to build on this growth in the years ahead. That’s why I’d buy the firm for my portfolio of penny stocks as a growth investment. 

That said, it’s clear Finsbury Food has struggled to grow in the past. Therefore, there’s a chance 2021’s performance could be an exceptional year. Rising costs may eat away at profit margins and cause growth to slow. That’s something I’ll be keeping an eye on. 

As the economy reopens, the demand for goods and services is increasing. Rising demand is particularly acute in the logistics sector. Prices are rising as companies struggle to meet customer demand. 

Freight management 

To play this theme, I’d buy Xpediator (LSE: XPD) for my portfolio of penny stocks. This company provides freight management services. And demand for these services is increasing.

In fact, it’s rising so fast that the company has already increased its projections for the year. Management believes the enterprise is well-placed to deliver full-year adjusted pre-tax profit “in excess” of £8.5m.

By comparison, Xpediator’s cumulative net profit for the last three years was £7.2m. I think these figures illustrate just how much of an impact the current situation is having on the company’s bottom line. That is why I’d buy Xpediator for my portfolio of penny stocks today.

However,  it does have some significant weaknesses. Profit margins are incredibly thin. The average for the past six years is just 3%. That doesn’t leave much room for error. If costs rise substantially, the company’s profit margin could disappear. Moreover, profits could also decline if freight transactions return to pre-Covid levels.

Now a lot of people don’t like to trade in  penny stocks. This is because their low cost can lead to severe price swings. However, as a long-term UK share investor, the prospect of extreme choppiness doesn’t discourage me from investing. I buy companies with a view to holding them for a decade, perhaps longer. Over this sort of time horizon, I can be confident the quality stocks I choose will rise in price, regardless of whether or not they trade below £1 when I buy in.

Besides, by seeking out penny stocks specifically, I can dig out some top-quality companies that the broader market has overlooked.

2 penny stocks on my radar today

Here’s what I consider to be two of the best penny stocks to buy now. I expect them to soar in value in the years ahead:

#1: A top UK retail share

It’s true that competition in the clothing retail arena’s intense. But N Brown Group has a number of cards up its sleeve I think will lead to handsome profits growth over the long term.

Its online-only model will allow it to exploit the e-commerce explosion and keep down costs. The cheapness of its apparel will enable it to ride the fast-fashion wave to the full. And its focus on selling garments for plus-size and older consumers gives it the edge in two fast-growing ends of the market.

At current prices of 55.5p per share, this penny stock trades on a forward price-to-earnings (P/E) ratio of 8 times. I think this makes it too cheap to miss.

#2: Another tasty stock to buy now

Finsbury Food Group could face pressure in the short-to-medium term as Covid-19 rates rise sharply again. Profits at the breadmaker have suffered in recent times due to the closure of the hospitality sector. But, over a longer time horizon, I’m confident this penny stock will deliver great returns.

The opening of a new gluten-free bakery in Poland last year, for example, illustrates the company’s commitment to continental expansion. It also demonstrates Finsbury’s responsiveness to changing consumer diets (in line with rising environmental and health awareness) which also includes new product launches like its BOSH! range of vegan cakes.

Today, this UK share trades at 93.5p. This means Finsbury trades on a forward P/E ratio of 10.5 times, broadly in line with the widely-accepted bargain territory of 10 times and below.

This adds an extra layer of appeal in my book.

Back on track

Smiths News (LSE: SNWS) is the UK’s largest newspaper and magazine wholesaler. The firm supplies around 55% of the market, including many airports and railway stations.

Covid-19 hit retail sales last year. But the company’s financial situation remained stable, with underlying operating profit down by just 5% to £18.9m. Smiths also took another big step forward with the sale of the loss-making Tuffnells courier business.

Having steadied the ship, management feels confident they’ll be able to restart dividend payments this year. Analysts’ forecasts suggest a payout of 1.6p per share, giving this penny stock a useful 3.9% yield.

Smiths News’ shares currently trade on just five times forecast earnings. I think they deserve a higher valuation, but there’s a risk here — sales of printed newspapers and magazines are in decline. I don’t see this changing, so the business could face additional challenges over the coming years.

Despite this, I’d be happy to buy Smiths News today. I’d aim to hold the stock until it reaches a more normal valuation.

Household favourites

Sales of bread, cakes and other baked goods from supermarkets soared in 2020. One of the UK’s largest suppliers of these products is penny stock Finsbury Food (LSE: FIF).

Although the company suffered from the closure of the hospitality trade, pre-tax profit for 2020 was only about 5% lower than during the 2019 financial year.

Trading has continued to strengthen as the UK has started to reopen. In an update at the end of May, Finsbury said pre-tax profit for the year ending 26 June is now expected to be around 10% higher than in 2019.

My main concern is that this business is always likely to face pressure on prices from its big supermarket customers. However, Finsbury’s improving performance and strong market share suggest to me the company is hitting the right notes with customers.

Finsbury shares are trading on just 11 times forecast earnings and management plan to resume dividends this year. I think the shares still have plenty of room to grow and I’d be happy to buy at this level.

This penny stock is performing well online

Car dealership groups like Pendragon (LSE: PDG) were forced to close their showrooms during lockdown, with only service departments remaining open for essential repairs.

Happily, it seems that many of us are now happy to buy cars online. During the first three months of 2021 — when the UK was in lockdown — Pendragon delivered 40,000 vehicles. That’s only 11% fewer than during the same period in 2020, when showrooms were open for all but one week.

Profits are improving too, thanks to a restructuring programme. Pendragon is expected to report an adjusted pre-tax profit of £29m for 2021, up from just £8.2m in 2020.

I can see two main risk today. Firstly, the global semiconductor chip shortage could disrupt the supply of new cars. Secondly, I think there’s a risk the UK economy could slump when Covid support measures are withdrawn.

Despite these concerns, Pendragon shares look affordable to me on 10 times forecasts earnings. I’d consider buying at this level, as I’m impressed by the company’s turnaround progress.