Tritax Eurobox

Tritax Eurobox (LSE: EBOX) is the smaller sibling of FTSE 250-listed real estate investment trust Tritax Big Box. Like the latter, it specialises in developing and managing warehouses (or ‘sustainable logistics assets’). As the name says, all of these are located in Continental Europe.

Demand for warehouse space from retailers went through the roof during the pandemic. This sent Eurobox’s share price up roughly 50% between March 2020 and August 2021. Since the beginning of 2022 however, the stock has crashed 20% in value.

This strikes me as a potential opportunity, especially as the current economic headwinds all look temporary. That said, a P/E of 23 certainly doesn’t strike me as a bargain valuation and there’s a risk Eurobox could fall some more.

Still, a 5.3% dividend yield isn’t to be sniffed at. It will also come in handy for tackling inflation. So I’m tempted to open a position in this penny stock.

EKF Diagnostics

Holders of AIM-listed EKF Diagnostics (LSE: EKF) have had an awful 2022, by any standard. The share price has been cut in two, leaving the company with a market capitalisation of just £160m.

Looking on the bright side, this valuation is still 60% above where it was when the first national lockdown in the UK was announced. This shows how well the company performed over 2021, thanks to Covid-19-related demand.

Having fallen so far, EKF stock now trades at 18 times forecast earnings. This looks fair considering that Wednesday’s AGM statement highlighted trading in Q1 had been “strong” with revenues “in line” with that achieved last year. That doesn’t sound like a company in crisis to me! The shares yield 3.6% dividend as well.

Analysts are expecting earnings growth of almost 25% in 2023. However, this is likely dependent on new non-Covid products being launched on time. A clear risk.

On balance, I’d be willing to begin building a position here too.

Victorian Plumbing

Bathroom products retailer Victorian Plumbing (LSE: VIC) is a company I’ve followed ever since it was listed in June last year. Concerned that it might be coming to market as the pandemic-influenced boom in DIY reached its peak however, I chose not to dive in. This proved to be a good call. The share price has tumbled 80% since then.

Are investors being too pessimistic? Possibly. Victorian has a good share of its market and benefits from a flexible online-only business model. Founder Mark Radcliffe still owns just under half of the company’s stock.

But, again, there can be no guarantees. With living costs hitting the consumer hard, plans to install a new bathroom suite are easily postponed. Throw in high marketing costs and a P/E of 18 doesn’t exactly feel cheap.

As such, I do wonder if there could be another drop to come if the next set of numbers don’t convince the market. I’ll wait to see evidence of better trading first.

Victrex

Victrex (LSE: VCT) may not be well-known, but its customers tend to be large industrial companies. It makes polymers that go in everything from cars to spacecraft.

There are a couple of things about the business that attract me. The first is that the applications to which its products are put are often mission critical. When safety is a consideration, customers are more likely to focus on quality than on cost alone. That gives UK-based Victrex the ability to compete against producers in lower-cost countries. Secondly, the company is a leader in certain polymer technology and has patents on some products, meaning that competitors cannot make them.

That adds up to a recipe for business profitability and last year, post-tax profits came in at £73m. While that was higher than the year before, it remains well below what the company managed in the years before the pandemic. Ongoing supply disruption remains a challenge for the company, along with cost inflation and soaring energy bills. Those things could help keep the share price depressed in the next couple of years.

That makes me regard it as a good stock to buy now for my portfolio. The long-term prospects for Victrex look sound to me. Over time, I expect supply chain issues to get better and inflation to become more manageable without hurting profit margins. The shares offer me a 3.3% yield and I think there is the prospect for share price growth in coming years.

Victorian Plumbing

Digital bathrooms, kitchens and plumbing merchant Victorian Plumbing (LSE: VIC) has also been suffering from investor concerns about the impact of inflation on its profit margins. Another concern is whether demand will fall, hurting revenues. Whereas Victrex’s customers have little choice as to whether or not they need polymers, Victorian Plumbing is selling what in some cases is a discretionary product. If inflation starts to bite household budgets, many people may put a planned bathroom renovation off for the foreseeable future.

That is weighing heavily on the Victorian Plumbing share price, which has fallen 82% in the past year. Yet like the chief executive, who has been purchasing shares lately, I see this as a buying opportunity for my portfolio. The company is profitable and has expanded its customer base over the past couple of years. Its asset light model means it does not need lots of capital to keep growing.

I see both of these companies as having attractive investment cases. I have added them to my portfolio and am hoping to see possible share price growth from them in the coming years.

With £300, I would put £150 into each, sit back and hope to see the businesses do well.

So penny shares do not attract my attention just because they cost under a pound – I also consider their long-term business prospects.

With a focus on the long term, here are three shares I have bought for my portfolio I think could increase in coming years.

boohoo

Retailer boohoo (LSE: BOO) has been facing troubles, such as ongoing reputational risk from supply chain conditions at some of its suppliers and inflation eating into profitability. Indications from rivals such as ASOS suggest consumers may be tightening their belts and spending less on fashion.

But I reckon that might actually help boohoo as it operates at the bargain end of the market. Its large new factory in Leicester shows it is addressing supply chain issues in a meaningful way. I reckon the company can raise prices in the next couple of years to offset inflationary pressures without too much damage to its bottom line.

Meanwhile, the company owns a host of popular brands and has a large customer base. It has been consistently profitable in recent years and is set to keep recording double digit percentage increases in revenues. I think the selloff means boohoo shares now trade well below their potential.

Victorian Plumbing

Like boohoo, Victorian Plumbing (LSE: VIC) has seen its share price collapse in the past year. Its share price has fallen by over 80% in 12 months.

Also like boohoo, the company faces headwinds. The same inflationary and supply chain issues could hurt its profitability. Bathroom and DIY sales may fall sharply now many are spending less time at home than during lockdown.

But, as with boohoo, the company is profitable. I think it has established a strong niche in the market. Another plus is that founder and chief executive Mark Radcliffe has spent another £354,000 buying shares this month. That means he now owns 152m of them.

The price-to-earnings ratio of less than six also looks like a bargain to me. I think if it can maintain profitability the share price can partly recover, even if revenues are flat. I also expect the company’s extensive advertising to help increase revenues. And that should help the share price.

Penny share in financial services

It may seem odd that Lloyds (LSE: LLOY), with its £32bn market capitalisation, trades among the penny shares.

But the financial services giant has been a penny stock ever since the aftermath of the financial crisis. Challenges remain. For example, a recession could lead to higher default rates and that would likely hurt profits at Lloyds.

But with its strong brand name, market-leading mortgage book and well-covered 4.4% dividend yield, I see a number of reasons to regard the shares as cheap.

Lloyds trades on a P/E ratio of six, which looks cheap. Rivals NatWest and HSBC trade on a P/E ratio of 10. If the business keeps performing strongly and the shares are valued more in line with its peers, I see potential upside for Lloyds in the short-term. In the years to come, if the economy is strong enough, I think we could potentially see the Lloyds share price soar.

A penny stock for the EV boom

I think Bluejay Mining (LSE: JAY) could prove an excellent stock to own as demand for electric vehicles (EVs) soars. You see this particular UK mining share is developing a series of projects in Greenland which contain elements like nickel, copper, cobalt and lead.

It also owns various copper projects in Finland which it is assessing for future development. These commodities are critical in the manufacture and the running of these low-carbon vehicles.

The problem with investing in Bluejay is that it isn’t actually generating any revenues at present, meaning it may struggle to afford to get its assets to production. Accruing lots of debt and tapping shareholders for cash are common options for companies in this scenario.

Encouragingly though, Bluejay created a joint venture with KoBold Metals — the mining technology business backed by Bill Gates and Jeff Bezos — to fund the Disko-Nuussuaq nickel, copper, cobalt and platinum project. This has helped remove a large chunk of the risk for Bluejay and its investors.

Bluejay Mining’s share price rocketed following the KoBold Metals news broke. But it’s more than halved since then to current levels of 7.4p. I think this could represent an attractive dip-buying opportunity for my ISA.

A top buy after IPO disaster

Victorian Plumbing Group (LSE: VIC) began trading in London to much fanfare last summer. Its IPO was the largest ever on the AIM market and so it came with lofty expectations. News of difficult trading conditions since then has inevitably yanked it lower.

At 54p per share, Victorian Plumbing trades at an eye-watering discount to its IPO price of 262p. The now-penny stock has been hitting by slowing sales and rising costs as a consequence of broader inflationary pressures. And this threatens to continue for some time (consumer price inflation just surged to 6.2%, data shows today).

However, I still believe in the long-term outlook for Victoria Plumbing. And as someone who loves value I’m highly tempted to load up on the business. At today’s prices, Victorian Plumbing trades on a forward price-to-earnings growth (PEG) ratio of just 0.5. Any reading below 1 suggests that a stock could be undervalued.

I like Victorian Plumbing’s online-only trading model and the steps it has taken to create a cutting-edge internet presence. Its focus on e-commerce is enabling it to exploit the rising popularity of online shopping with consumers and is keeping costs down. The strength of its online offering is one reason for its ‘excellent’ rating with customers on Trustpilot.

I also believe Victorian Plumbing will continue to benefit from a strong housing market. The favourable mortgage rates of recent years look set to persist, meaning sales of Victorian’s plumbing to both sellers and buyers should be robust.

I fully expect Victoria Plumbing to recover from that disastrous IPO and deliver rock-solid shareholder returns.

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Today, I’m returning to look at a company that’s been on my watchlist ever since it was listed in June 2021. Should I finally dip my toe in the water?

Penny stock disaster

Based on recent performance, it’s just as well I’ve held back from pulling the trigger on bathroom specialist Victorian Plumbing (LSE: VIC). From jumping to a 52-week high of almost 342p early on, the share price has since collapsed 75% to 85p. What on earth’s happened here?

I don’t think there’s one single factor to blame. As I remarked at the time, it’s clear that Victorian Plumbing’s IPO was opportunistic and designed to coincide with the boom in DIY seen since the beginning of the pandemic. This allowed original investors to make an absolute killing. And I can’t really blame them for wanting to achieve the best price possible for their stakes. 

The issue with being the largest IPO ever on the junior AIM market is that new investor expectations jumped ahead of reality. Since those heady days, Victorian Plumbing has experienced issues with its supply chain (like many other businesses). Revenue growth has also slowed as the rush to buy new bathroom suites replaced with spending on other things.

Buy the (big) dip?

On the one hand, I’m now able to buy stock in a cash-generative company for 17 times earnings, based on analyst forecasts. That’s not screamingly cheap but nor is it is eye-poppingly expensive. Interestingly, VIC also has a PEG (price/earnings-to-growth) ratio of just 0.5. Anything less than one suggests new buyers are getting a lot of bang for their bucks. 

I’m also attracted to Victorian’s online-only/capital-light business model. It’s already profitable (in contrast to a lot of highly-valued fluff out there) and there’s a decent amount of cash on the books.

Furthermore, the company has a sizeable share of the market and customer reviews are generally very positive. To round things off, CEO/founder Mark Radcliffe retains a huge 47% stake. If anyone wants the company to bounce back, it’s him. 

But let not get ahead of ourselves. An obvious risk with this penny stock is that things could get worse before they get better. A military conflict in Eastern Europe has the potential to hit growth stocks like this, even if it’s irrelevant to selling bathrooms. Margins look like being squeezed for the foreseeable future too.

Victorian Plumbing also has a small free float. Just 35% of the company’s stock is available to trade in the market. That could exacerbate an already bad situation. It only takes a small amount of selling to really move the needle. On a more optimistic note, the reverse is also true. 

My verdict

I do feel like the (prolonged) sell-off of this penny stock has been overdone. Nevertheless, I’m inclined to wait until after this month’s AGM (and a potential update on trading) before deciding whether now is the time to strike.

For now, this penny stock stays on my ISA watchlist.

“Slower than expected” sales

At the time of writing, the share price of video game developer Frontier Developments (LSE: DEV) has tumbled almost 43% in 2021 to date. This isn’t a complete surprise.

Back on 22 November, Frontier announced that PC sales of its latest release — Jurassic World Evolution 2 — had been “slower than expected“, due to a “crowded release window“. That’s despite generally favourable reviews from critics and gamers alike.

Unfortunately, copies of another one of the firm’s titles — Elite Dangerous: Odyssey — haven’t been flying off the shelves either. As a result, Frontier is revising its guidance on full-year revenue to between £100m and £130m. That’s a significant reduction on the £130m-£150m once hoped for. A lot will depend on how the company fares over the run-up to Christmas, hence why investors are understandably skittish.

Opportunity knocks?

Could this be a great opportunity? Possibly. As the company itself notes, the arrival of the new Jurassic World Dominion movie next year could generate better demand for its latest release. There are also Frontier’s first F1 management and Warhammer games to look forward to. Demand for video games (and, consequently, video gaming stocks) could also return if further restrictions are brought in to tackle the Omicron variant.   

My issue with Frontier, however, remains its valuation. A P/E is 47 isn’t excessive compared to some tech-related shares. It is, however, very rich for a stock that depends on a small number of titles performing as expected.

Without a compelling margin of safety, Frontier stays on my watchlist for now. That said, further slippage in the share price could force my hand.

Another growth stock disappoints

Online bathroom-related products seller Victorian Plumbing (LSE: VIC) is another growth stock that’s crashing in 2021. Since hitting a high of almost 342p back in June, its value is now down over 70%. 

A good proportion of this fall came following last Thursday’s full-year numbers. Despite posting a 29% rise in revenue to just under £269m, investors were shaken by the company’s rather subdued outlook on trading as the UK home improvement/DIY boom shows signs of having run its course. This was a risk I raised not long after the firm’s IPO.

Does a slowdown in growth justify such an awful share price collapse? I’m not so sure. In fact, Victorian Plumbing shares could offer great value now, even if gross margins fall, as expected.

Barriers to entry aren’t exactly high, but Victorian should continue growing its already significant presence through a hefty marketing budget. Other attractions include a solid balance sheet and a strategy to target more trade customers going forward. Founder and CEO Mark Radcliffe also remains a major shareholder. This should make him even more determined to see the company recover. 

Like Frontier, Victorian Plumbing remains on my watchlist. However, a lot of bad news does look to be priced in. A bounce could be on the way if trading proves even slightly better than a now very pessimistic market is predicting.

For now, I’m letting the dust settle.

However, I’ve gained a good impression of this business since its listing. Sales rose by nearly 30% during the year to 30 September and the group is generating plenty of profit. I reckon today’s share price crash might have left Victorian shares trading at bargain levels.

Good and bad news

Today’s warning came alongside a strong set of results. Victorian Plumbing’s sales rose 29% to £269m last year, while underlying pre-tax profit rose 23% to £29.1m. Customer numbers rose by 13% to 638,000 during the year, as the business benefited from the lockdown DIY boom.

That was the good news. The bad news is that things are expected to be tougher this year.

Sales since October are said to be “broadly the same as last year”, with shoppers spending more on leisure and less on home improvements. That’s no real surprise, in my view. But it does mean it will be harder for Victorian to hit growth forecasts for this year.

To try and solve this problem, it looks like the company is planning to absorb higher product and labour costs in order to keep its prices down. Founder and CEO Mark Radcliffe hopes this will enable the firm to expand its market share and generate further sales growth.

Will profits keep rising?

Based on the numbers provided today, my sums suggest that Victorian Plumbing’s profits may be flat this year. Depending on how market conditions change, I think we could even see a drop in earnings.

However, I think the longer-term growth opportunities are still attractive. The brand appears to be popular with customers, with an Excellent rating on Trustpilot, with over 142,000 reviews.

Sales have doubled since 2018 and the group’s operating profit margin of 10% is higher than either Topps Tiles or B&Q-owner Kingfisher.

Radcliffe is targeting continued growth by adding new products, such as tiles and lighting, and by offering a dedicated service to trade buyers. This all sounds sensible to me.

Victorian Plumbing share price: too cheap?

I normally avoid recent IPO stocks that have crashed. But I can see a lot to like about Victorian Plumbing.

The group has no debt and is still led by its founder, who has a 45% stake in the business. Although he pocketed an eye-watering £212m in June’s IPO, I reckon he should still be motivated by his large shareholding.

I thought the shares were too expensive when they floated in June but, right now, they’re starting to look cheap to me. After today’s slump, I estimate VIC could be trading on around 12 times 2022 forecast earnings. For a growing online business with no debt and proven management, I think that’s attractive.

The main risk I can see is that the slowdown in sales will be worse than expected. Last year’s DIY boom was unusual, after all. We don’t know what will happen next year.

For this reason, I plan to wait for the company’s next trading update before deciding whether to buy. But I’m definitely tempted. I think this business is worth watching.

Get bowled over

The popularity of tenpin bowling in the UK was rocketing before the Covid-19 outbreak. Judging by recent trading levels at Ten Entertainment Group, it seems like the appeal of skittling pins remains pretty mighty too. Like-for-like sales at the company soared 30% year-on-year during September and October, with Ten Entertainment enjoying record demand over the recent half-term holiday.

Ten Entertainment is expecting sales growth to remain at double-digit levels in 2022 too, compared with pre-pandemic levels. And it plans to keep expanding to exploit this buoyant market, with four new centres earmarked for next year alone. I think the leisure giant’s a great buy for me, despite the ongoing threat of fresh Covid-19 lockdowns. Right now, it trades around 260p per share.

The IRN giant

I’m sure AG Barr’s (LSE: BAG) marketing team must have been on cloud nine during the COP26 convention in Glasgow. Delegates from across the globe have been rushing onto social media to give their verdict on its IRN-BRU beverage. The orange fizzy drink is one of Britain’s favourite brands and recent publicity has helped broaden its global audience.

Barr isn’t all about IRN-BRU though. Its other beloved labels include Rubicon, Snapple and Tizer, products that carry exceptional brand power that keeps volumes ticking over during good times and bad. They also allow the business to raise prices at all points of the economic cycle. I’d buy Barr despite the fact it faces immense competition from industry giants like The Coca-Cola Company. Today the business trades at 495p per share.

Take control

Strix Group’s operations might not be the most exciting out there. This cheap UK share manufactures safety control mechanisms that stop kettles become a hazard. However, the rate at which revenues are growing at this market leader are anything but boring. Reported sales between January and June rocketed almost 25% higher versus the same 2019 period.

A catastrophic failure of its products could hit demand hard, of course. But although past form is no guarantee of future performance, I’m encouraged by Strix’s great track record on this front. The business trades at 290p per share today.

Pipe dreams

I’m also considering using recent share price weakness at Victorian Plumbing Group (LSE: VIC) as a chance to grab a bargain. At 160p per share, the bathroom products manufacturer is trading at a near-40% discount to June’s IPO price. While trading here has cooled recently compared with that during Covid-19 lockdowns, I think the market has overreacted to this slowdown.

Spending on home improvements remains strong in the UK. And, pleasingly for Victorian Plumbing, expenditure on bathroom products in particular is tipped to remain solid. A July report by Volkswagen suggested Britons will spend £135bn on home improvements over the next 12 months, with bathroom renovations third on the list of most-desired upgrades.

I think Victorian Plumbing’s a great stock to own, despite the threat posed by other major industry players like B&Q and Wickes.

Victorian Plumbing

I took an initial look at Victorian Plumbing (LSE: VIC) back in June. At the time, the UK’s leading online retailer of bathroom products and accessories had just enjoyed a successful IPO. The shares had jumped from 262p to as high as 341p. Today, the very same stock trades 44% below that peak. What’s going on?

Well, as I noted back then, the company was coming to market during a DIY and home improvement boom. Many of us had used the multiple UK lockdowns to get our properties in order and/or prepare for more home-working in the future.

Unfortunately, last week’s trading update for the year to 30 September suggested this purple patch might be coming to an end. Despite growing revenue by 29% over the financial year, news of “more subdued market conditions” as Covid restrictions were lifted didn’t impress investors. This is despite the company emphasising that margins “remained strong“ and EBITDA for FY21 would likely be “ahead of market expectations“.

Jitters over global supply chains may also have contributed. Having said this, VIC didn’t help itself here. Reflecting that it had been “proactive” on this issue but providing very little in the way of detail wasn’t really satisfactory.

Even so, the market’s treatment of Victorian Plumbing has been a little too brutal, in my view. I guess this is what happens when a highly-rated growth stock doesn’t execute to perfection.

As things stand, VIC stock trades on 21 times earnings. With global headwinds unlikely to disappear anytime soon, I’m inclined to think that the valuation may still have further to drop. As such, I’m keeping my powder dry. It definitely won’t lose its place on my watchlist though.

Luceco

If Victorian Plumbing’s valuation still appears a little too rich, lighting specialist Luceco (LSE: LUCE) is looking far more palatable. Right now, the near-£500m cap company’s stock changes hands for a little over 15 times earnings. 

Sadly, my bullish call on LUCE just over one month ago wasn’t shared by the market. Despite reporting very decent numbers and raising the interim dividend by 73%, investors have elected to abandon the stock en masse. All told, LUCE shares were down 41% before markets opened today since hitting an all-time high in early September. Then again, they’re still up 41% in the last 12 months. 

In my defence, I questioned whether the lack of buying activity on the day did suggest investors were concerned by the firm’s comments relating to significant cost inflation and supply chain setbacks. Even so, I underestimated just how great this concern was. Some director selling hasn’t helped matters.

Of course, short-term setbacks may be regarded as opportunities for long-term investors such as myself. This remains a quality business, in my opinion. Bar the odd blip, margins and returns on capital have been consistently great. The aforementioned cash returns should also be sufficient compensation while investors await a recovery. How long that recovery takes is debatable, of course. 

Far from switching off from this growth stock, I’d be comfortable starting to build a position today.