With that in mind, here are three penny stocks I’d buy in June. 

Penny stocks to buy

The first organisation is online estate agent PurpleBricks (LSE: PURP). According to the company’s latest trading update, it’s benefiting from the current housing market boom in the UK.

Total instructions increased by 12% to 60,238 in the financial year ending 30 April. In addition, the number of instructions in the second half significantly exceeded management expectations. Off the back of this strong trading performance, management has decided to repay furlough cash received from the government. 

The main risk facing the company is the risk of a property market slowdown. The group still isn’t profitable, which could hold back growth. Both of these risks could destabilise the firm’s outlook. 

Despite these risks and challenges, I’d buy the stock for my portfolio of penny stocks, considering its increasing awareness among consumers.

Market growth 

Another company I’d buy is construction materials group Severfield (LSE: SFR). Initial figures appear to show the construction sector has been one of the fastest industries to recover from the pandemic. Severfield is benefiting from this trend.

According to the firm’s latest trading update, it’s been “trading at normal (pre-pandemic) levels, in line with government and industry guidelines, since the beginning of Q2 of the 2021 financial year.“

Further, management notes that the company has a “strong” order book worth £315m, which “supports trading throughout the 2022 financial year and beyond.“

That said, while the construction sector appears to have recovered quickly, it’s always one of the first to suffer in a downturn. Therefore, if the UK economic recovery starts to stagnate, Severfield’s growth may come shuddering to a halt. In many ways, all penny stocks are exposed to this risk. 

Consumer spending

Initial indications suggest consumers have been more than happy to splash lockdown savings as the hospitality industry has reopened over the past few weeks. This implies the future for Time Out (LSE: TMO) is positive.

While this company does have its risks, mainly the fact that it’s still losing money, and has high costs, I think it has appeal as a recovery investment.

Time Out is best known for its media business. However, it’s also been spending heavily on a marketing concept in recent years, which brings together customers and food businesses. Unfortunately, this business has been flattened by the pandemic, but it could have strong recovery prospects. 

To strengthen its balance sheet and prepare for reopening, Time Out recently raised £17m from investors. However, as it’s still losing money, there’s a risk of further cash calls down the line. 

Still, I’d add the share to my portfolio of penny stocks for its recovery potential. 

Here are a couple of minnows that still appear to be flying under many investors’ radars.

On track

Reporting some positive interim numbers this morning was Leeds-based Tracsis (LSE: TRAC) — a business that provides software to the transportation industry.

In the six months to the end of January, revenue increased 16% to just over £18m with statutory pre-tax profit accelerating 33% to £2.4m.

Over the reporting period, Tracsis began delivering on a big deal for its software with a “major” UK train operator. It also secured the renewal of a contract with a “global engineering company” and made progress across the pond with its remote condition monitoring technology (which can help to detect faults). Since the end of the interim period, the company has also made a couple of acquisitions, Travel Compensation Services Ltd and Delay Repay Sniper Ltd.

A suitably bullish CEO John McArthur reflected that the performance on all key metrics over H1 had been “comfortably ahead of the previous year” and that management was “confident” full-year numbers wouldn’t disappoint the market. 

For those who like to own companies in rude financial health, Tracsis more than hits the spot. It had £18.5m at the end of January, in contrast to the £12.7m at the same point in 2017. There’s no debt to worry about and free cash flow continues to look excellent.

Before today, analysts were forecasting a 78% rise in earnings per share for the current year, giving the company a price-to-earnings (P/E) ratio of 22. That’s not cheap but, given the quality of the business, it might just be worth paying.

Time to buy?

Also reporting today was global media and entertainment company Time Out Group (LSE: TMO).  Shares in the small-cap have failed to capture investors’ interest since coming to the market in June 2016 and reaction to today’s annual results suggests this apathy might continue. 

As a result of underlying growth and contributions from franchisee acquisitions in Australia and Spain, group revenue increased 19% year-on-year to £44.4m. The bulk of this (£38.4m) came from its Digital division with a 57% increase in e-commerce over the reporting period, leading CEO Julio Bruno to state that Time Out was developing into a “transactional business”.

Having welcomed 3.6m visitors over the period, revenue at the company’s Market division soared by 62% to £6m. With a lease agreement now signed, Time Out hopes to replicate the success of its site in Lisbon with one in New York. Additional markets are planned for Miami, Chicago and Boston. 

So, is now the time to buy? Much of that will depend on how you feel about owning shares in a business that is still to turn a profit. Due to higher costs, Time Out revealed an adjusted EBITDA loss of £14.2m today —  34% higher than the previous year but in line with expectations. The 28.8m of cash on the company’s balance sheet was also over 40% lower than at the same time last year.

Personally, I’ll be keeping Time Out on my watchlist for now.

However, despite rising sales, profits have remained elusive, but it looks as if this is about to change. 

Maiden profitability 

According to the company’s first-half results published today, renewal billings nearly tripled to $3.1m while renewal revenue more than doubled and now accounts for 45% of revenue, compared with just 15% in the same period last year. This growth means that renewal billings are now higher than fixed operating expenditure, which came in at $2.6m for the first half. 

Heading into the second half, MMX is primed for further growth as management has decided to hold back key 2017 inventory releases. Billings eased to $5m from $8m the year before. However, sales of roughly $6m have already been achieved during the third quarter, bringing year-to-date sales level with 2016. Commenting on the results the firm said: “The first half of 2017 has been a period of consolidating the transformational progress of 2016 and establishing a solid platform for the business to deliver its maiden year of profitability as an operating business in the current year.“

With $15.3m of cash at the end of August, MMX has a strong balance sheet to support growth. I believe that the market will re-rate the shares when the company reports its maiden profit. 

Hidden from view 

Time Out Group (LSE: TMO) went public in mid-2016 but has so far failed to attract attention from investors. Indeed, the shares have barely budged over the past year. Nonetheless, I believe it’s only a matter of time before the market catches on to the opportunity here.

Time Out owns the Time Out magazine brand and a string of food markets. With a global monthly audience of 242m, the group has a huge base of customers and viewers to try and sell its offering to. What’s more, this audience is multiplying, up 77% year-on-year for the first half of 2017. 

Unfortunately, this growth is proving costly. The group’s pre-tax loss rose to £16.3m for the six months to the end of June, up from £8.5m in the year-ago period. Revenue increased by 13% to £18.7m from £16.6m. In the Time Out Market business, Miami is set to open in 2018, with a lease agreement close to completion in a second major city and the group considering new global locations. With approximately £30m cash on hand at the end of the first half, Time Out has plenty of funding to fuel further growth. 

City analysts are expecting the company to break even in 2019. Losses of £19.5m are projected for full-year 2017, falling to £4m for 2018 as revenue expands from £45m to £69m. If sales continue to expand at this rate, shares in Time Out will warrant a growth multiple as profits start to grow. Based on current gross profit margins, I estimate that the firm could achieve a pre-tax profit of £10m or more by 2019, indicating that today the shares are trading at a 2019 pre-tax multiple of 20. This looks too cheap to me. 

Astronomical growth rates

One of my favourites is Fevertree (LSE: FEVR), which makes up-market mixers like tonic and soda water for cocktails. This a fast-growing market as, just as has happened over the past decade with beer, consumers are increasingly demanding pricier, high-quality mixed drinks.

With snazzy designs and hipster-friendly tales of sourcing only the freshest ginger from Nigeria and lemons from Sicily, Fevertree has been growing at a rapid clip. The company’s latest interim results recorded a 69% year-on-year rise in revenue and 72% rise in EBITDA.

What attracts me to Fevertree, besides astronomical growth rates, is the company’s out-sourced production model that rids the company of the low-margin work of bottling and distributing its drinks. This led to gross margins hitting 54.8% over the past six months. With high margins, high growth and net cash on the balance sheet, it’s easy to see why the market has fallen in love with Fevertree and sent its share price up to an astronomical 51 times forward earnings.

One to watch

It’s hard to talk about hipster-friendly listed businesses without mentioning Time Out Group (LSE: TMO), the parent of the millennial-targeted Time Out Magazine. Time Out makes money through traditional print sales and, most importantly, increasingly relies on digital ad sales in the 100 or so cities it has a presence in. As print revenue declines, to the tune of 2% year-on-year over the past six months, the double-digit growth from digital sales will be the critical factor in the company’s long term health.

There’s good news on that front, as the 33% rise in digital revenue over the past half year was exactly in line with a significant 33% increase in global readership. The company only went public in June, but if it can continue to increase page views at a rapid pace and monetise e-commerce opportunities such as concert ticket sales then Time Out could be one to watch in the coming years.

An expensive business

Perhaps the polar opposite of Fevertree and Time Out is pub chain JW Wetherspoon (LSE: JDW). Wetherspoons is already a giant in the industry with 926 pubs, but that hasn’t protected it from the major changes rocking the sector, such as falling foot traffic, high taxes and Britons increasingly shifting towards drinking at home.

Like other pub chains, Wetherspoons plans to confront these issues is to broaden its appeal with more emphasis on food sales, higher-quality pubs and expanding into offering hotel rooms. The problem is this is an expensive business. Net debt is up to 3.47 times EBITDA and operating margins fell to 6.9% over the past year from 7.4% the year before. Wetherspoons has an enviable array of pubs and is still generating significant cash, but with relatively low growth prospects, high debt, low dividends and a rough industry outlook I’ll be looking elsewhere for my investments.

However, some well-established firms also choose to float on AIM and these are often worth a second look. Media group Time Out (LSE: TMO), which was founded in 1968, and property company Watkin Jones (LSE: WJG), whose history goes back as far as 1791, have both joined the junior market this year.

Ambitious growth strategy

Time Out was floated at 150p a share in June, raising net funds of £59m after paying off debts of £25m. Management plans to continue the transformation of what was originally a traditional print brand into a global multi-platform media and e-commerce business.

It’s an ambitious and many-pronged growth strategy. It includes content distribution through magazines, online, mobile apps and mobile web, live events and the rollout of Time Out Market, a concept trialled in Lisbon that brings together a curated selection of a city’s best restaurants, food shops and culture under one roof.

Results and valuation

In its maiden half-year results as a listed company, announced today, Time Out reported pro forma group revenue of £16.6m — an increase of 16% (13% at constant currency) on the same period last year. Meanwhile, the operating loss was broadly the same at £7.3m.

The shares are little changed from yesterday’s closing price of 140p, which gives Time Out a market value of £182m. This represents 5.5 times annualised first-half sales, which strikes me as rather rich for a company with healthy, but unspectacular, mid-teens revenue growth.

Time Out’s multi-faceted growth strategy has potential, but appears far from straightforward to execute. And with the company being lossmaking and not intending to pay a dividend for the foreseeable future, I think this is a stock best watched for the time being.

All according to plan

Watkin Jones was floated at 100p a share in March. The company, which specialises in the development, construction and management of student accommodation, today released an on-track update on projects that have been completed ahead of the start of the 2016/17 academic year.

This continues the solid news issued by the company since the release of its maiden listed interim results in June. Those results saw revenue increase by 41% on the same period last year, with earnings (excluding the one-off flotation costs) increasing 87%. The board declared an interim dividend in line with the guidance it gave at flotation.

With everything going according to plan, the market has begun to warm to Watkin Jones. The shares have edged higher again today to 119.5p, giving the company a market value of £305m.

Undemanding valuation

I like Watkin Jones’ area of specialisation, its forward-sale business model and end-to-end service, all of which reduce risk and improve earnings and cash flow visibility. And I reckon the shares remain good value despite the rise since flotation.

A rating of 11.5 times annualised first-half earnings is undemanding, and falls to 9.9 based on the house broker forecast for the full year ending 30 September. Meanwhile, company guidance on the full-year dividend gives a nice yield of 3.3%.

I’m expecting earnings and dividend growth of at least 10% next year, which gives me further cause to rate the shares a buy.

First update

Time Out (LSE: TMO) released its first trading update today after its initial public offering in June. The company raised £90m to pay down debt and invest in growing its e-commerce and digital advertising operations. Today’s update was encouraging: year-on-year group revenue was up 16% and digital revenue grew by 33%. The company has started life well on the London market and the share price is flat since admission to it. An encouraging element has been the relentless buying of shares by institutions. Invesco added to its initial stake and now holds over 11.5% of the shares in issue. Britain’s most loved fund manager has also been buying and Neil Woodford owns over 15% of the company through his Woodford Investment fund. This to me is a seal of approval for the stock and should give investors confidence. 

Growing production

Cameroon-focused Victoria Oil & Gas (LSE: VOG) updated the market today on its operations in the second quarter of this year. The numbers look quite encouraging, production is up to 13.04 mmscf/d which led to revenue for the quarter of $12.5m. Importantly the next two phases of pipeline should be commissioned by the end of 2016 and it will be able to feed an additional 12 customers who have already signed gas sales agreements. 

CEO Ahmet Dik said: “We now look forward to expanding our supply capability to the next level to meet the on-going strong demand for gas we are experiencing in Douala.” Things are beginning to look better for the company after many years of slow movement. I look forward to the next set of results but I’ll be sitting on the sidelines until then. 

Currency boost

Croda International (LSE: CRDA) also released interim results today. At constant currencies, sales were up 2.1% and adjusted profit before tax up 6.3% to £144.6m. These numbers are impressive and to add to this, currency movements have boosted profits significantly. In fact, the pre-tax figure was boosted by £4m, which is a nice surprise for shareholders. Croda’s management has reacted to this by increasing the dividend by 5.6% even after investing over £50m into capital investments in the last six months.

But while these results are good, there were references to “subdued demand in the first half of 2016,” which is slightly worrying. It places much more emphasis on cutting costs and if demand for Croda’s products is subdued for a year or two, then the share price may fall.  

Steve Foots, Croda’s CEO, said: “The group is on track to deliver our expectations for the full year, in constant currency terms, while Sterling weakness will benefit our reported results.” And that should be encouraging for shareholders because further Sterling weakness will boost revenue and profits beyond expectations.