These two excellent companies trade on a price-to-earnings (P/E) ratio of below 7 times. Let me explain why I’d buy them today and hold until the end of the decade.

Working it out

Budget retailer TheWorks.co.uk (LSE: WRKS) faces considerable uncertainty in the near term as shopper spending power plummets. GfK data last week showed consumer confidence slumped to record lows in a worrying omen for future revenues.

Margins at the business are also under threat from rising product, shipping, energy and labour costs.

I’m still thinking of buying TheWorks shares though. As someone who invests for the long term, I think there’s a lot to be excited about here. Consumer demand for value was already rising sharply in the years before the cost-of-living crisis. Current economic conditions have speeded up this consumer trend too.

Moreover, the arts and crafts retailer also stands to benefit handsomely from Britain’s rapidly growing army of hobbyists. Market rival Hobbycraft’s decision to open three new stores underlines the huge potential of this market.

As I said earlier, at current prices, TheWorks now offers terrific all-round positives that I find hard to ignore. The company trades on a forward P/E ratio of 5.6 times.

Meanwhile, forecasted dividends — payouts that are covered a healthy 2.2 times by anticipated earnings, incidentally — create a giant 8.2% dividend yield.

Home comforts

Inland Homes (LSE: INL) is another dirt-cheap share I think warrants serious investor attention. The housebuilder currently trades on a forward P/E ratio of just 6.3 times.

The main threat to the sector is a powerful and prolonged rise in inflation. In this environment the Bank of England (BoE) could continue aggressively hiking rates to ease the pressure. The central bank hiked its consumer price growth inflation again this month (to a jaw-dropping 11%) in a sign of the growing strain.

In this environment, homeowner affordability will come under increased pressure. This, in turn, could hit demand for Inland Homes’ properties hard.

Encouragingly though, demand for residential property continues to surge despite rising BoE rates. This fills me with a lot of confidence. There are a number of factors that could keep newbuild home sales rising strongly too. Insufficient numbers of existing properties entering the market is one.

So does the fact that the BoE’s benchmark rate remains well below levels before the 2008 financial crash mean mortgage rates will remain historically cheap? Intense competition among lenders is also helping people get on the property ladder.

Several government initiatives should also support profits growth at Inland Homes and its peers when Help to Buy ends next March. This includes the Deposit Unlock programme that means buyers will only need a 5% deposit.

Inflationary strains

Investing in value retailers is an appealing idea to me as the cost of living crisis worsens. News that Aldi and Lidl are the fastest-growing grocers right now illustrates the excellent investing opportunity here.

It’s why I’m considering buying TheWorks.co.uk (LSE: WRKS). Buying these sorts of stocks might prove a lucrative decision for long after 2022 too. The pressure on shoppers’ wallets is tipped by many to remain severe as inflationary pressures persist.

Take Andy Haldane, for example. The Bank of England’s former chief economist has said high inflation could last for “years rather than months,” suggesting that elevated price rises could last until 2024.

Working it out

The Works sells books, games, toys, and arts & crafts materials. So it could be argued that the firm might suffer as consumers slash spending on non-essential items.

I still believe the sales outlook for the budget retailer remains compelling however. I think it might benefit significantly as people switch over from more expensive retailers. After all, people don’t stop reading, and children still need toys and games when times get tough, right?

I also think The Works’ bid to bolster e-commerce revenues will pay off handsomely now and in the next few years. Between April and October 2021, online sales here jumped 81% on a two-year basis. This was helped by its large investment in products, its platform, and its fulfilment capabilities.

The Works currently trades around 51p per share. This leaves it trading on a forward price-to-earnings (P/E) ratio of 6.6 times, well inside bargain-basement territory of 10 times and below.

Another cheap UK share to buy

I believe buying Premier Foods (LSE: PFD) shares could be a profitable idea too. This is thanks to its packed stable of ultra-popular food brands.

History shows us that spending on food remains broadly resilient when times get tough. We need to keep eating to keep going, right? So this nearly-penny stock should trade more robustly than many other UK shares, the theory goes.

Premier Foods has an advantage in the market too, thanks to its winning product lines such as Mr Kipling cakes, Bisto gravy and Batchelors instant meals. These brands command supreme customer loyalty that means volumes remains strong at all points of the economic cycle.

Great value

I can’t speak about food producers like Premier Foods without mentioning the impact of rising costs on their bottom line. Commodity prices are soaring on core ingredients and could continue if the war in Ukraine continues. For example, the European Investment Bank estimates that Ukraine is sitting on €8bn worth of wheat it can’t export.

However, I think the threat of rising costs to Premier Foods’ profits are reflected in the company’s rock-bottom valuation. At 105p per share, the FTSE 250 stock trades on a forward P/E ratio of just 9.1 times.

Value retailer

The Works is a leading retailer of value gifts, arts, crafts, toys, games, books and stationery. It operates through over 500 stores in the UK and Ireland on high streets, in shopping centres and via concessions. It sells online too.

A penny stock is a stock trading for less than £1. The Works shares are trading for 55p so they easily qualify. At this time last year, the shares were trading even lower at 48p, so it has seen a 12% increase over a 12-month period. The shares did reach as high as 70p in February, but the stock market correction this year pulled many shares back, including this one.

A penny stock with risks

The Works may attract plenty of customers through its real or virtual doors due to pricing power and its value offering, but rising costs are a real worry. Many businesses are seeing their profit margins being squeezed due to the rising cost of materials throughout the world. If this continues, profits and shareholder returns could be affected. Furthermore, a price increase for its products could dent footfall and revenue.

Another risk The Works is facing is the ongoing supply chain crisis. This means it could struggle to get the products people want. Out of stock messages and empty shelves are a customer turn-off and that would hurt profits and the share price.

Why I like The Works shares

So far, so bad. But I do like the business, especially now when inflation is such an issue. The macroeconomic conditions in this country tell me that consumers will turn towards value products. And retailers that offer quality-at-a-cheaper-price products are poised to make the most of this. The Works could benefit if footfall and website traffic increase as customers seek greater value, boosting revenues and profits.

At current levels, The Works shares look dirt cheap to me on a price-to-earning ratio of just six. This makes it a bargain penny stock with growth potential ahead, I feel.

I can see The Works has a good track record of performance too. I understand that past performance is not a guarantee of the future. But in its last update in January, for the 26 weeks ended 31 October, The Works reported revenue had increased by over 30% compared to the same period in the previous year and it was above pre-pandemic levels. It also reported net cash up and losses down. Those losses were due to Covid-19 related issues and store closures.

I would buy the shares for my portfolio and hold on to them for the long term. I see it as an excellent penny stock with a decent track record, albeit blighted by pandemic issues between 2020 and 2021. In light of current macroeconomic factors, I believe it is well placed to benefit that could drive profitability and lucrative shareholder returns in the longer term.

One of the best healthcare stocks to buy?

Demand for private healthcare in the UK is soaring. The Covid-19 crisis has put the NHS under unprecedented strain and patients are having to wait for treatment like never before.

The government has suggested that the problem will get worse before it gets better too. This week, health secretary Sajid Javid warned that hospital waiting lists — which currently sit at record peaks of 6m — will continue to grow until March 2024, at least.

All this is playing into the hands of private healthcare providers like Spire Healthcare Group (LSE: SPI). Indeed, the company’s September financial update showed revenues grew by robust double-digit percentages in the six months to June. Sales were up 38.9% and 13.5% versus the same 2020 and 2019 periods respectively.

I’m expecting Spire’s full-year update on 3 March to show that trading has remained robust since then. The healthcare provider has risen an impressive 53% in value over the past year. And I think that upcoming update could drive the share price even higher.

Spire’s ultra-cheap share price certainly leaves plenty of scope for fresh gains. Today, the business trades on a tiny forward price-to-earnings growth (PEG) ratio of 0.1. I’d buy the business despite the threat posed by larger market operators such as BMI-owner Circle Health Group.

A dirt-cheap penny stock I’d buy

I also believe TheWorks.co.uk (LSE: WRKS) could be too cheap for me to miss today. It currently trades on a forward price-to-earnings (P/E) ratio of just 7.7 times. It’s a rating I don’t believe reflects this value retailer’s strong trading outlook.

Britons are finding it increasingly hard to make ends meet as inflation rockets. The Bank of England expects consumer price inflation to exceed 7% in April too. National Insurance tax hikes in the spring threaten to crush shopper spending power even more.

Consumers will have to shop increasingly cleverly to maintain their present lifestyles. And this is where I think The Works comes in.

Through its 500-plus stores and its website the business sells games, books, craft products and other goods at lower prices than much of the high street. I expect the number of people passing through its doors to grow as people shop around.

I don’t just think The Works is a great buy for the near-term though. And this isn’t just because the value retail boom was expected to continue regardless of this recent inflationary surge.

The retailer’s product categories are ones that are tipped to grow strongly in the years ahead. Take board games for instance. Researcher Technavio thinks this market will grow at a rate of 7.1% between 2021 and 2025.

Profits at The Works could suffer if the cost of stocking its stores also continues to rise. But, all things considered, I think things are looking extremely good for this UK stock and its investors.

I’m confident that buying penny stocks could be a good idea for me, however. I always do a lot of research before buying UK shares so I can root out the weaker bargain shares and find the unloved gems. As a long-term investor I’m also not put off my the prospect of some temporary share price volatility. I’m confident the stocks I buy will rise strongly in value over a period of years.

With this in mind here’s a dirt-cheap penny stock I think could help me make lots of cash.

A top retail penny stock

Shopper spending power is coming under increasing pressure. Bank of England data shows that Britons saved less and borrowed more in December as they battled the problem of rising inflation. There’s only so far this strategy can go, however, as the inflationary bubble expands and many people will have to shop more cleverly if they wish to maintain their standard of living.

TheWorks.co.uk (LSE: WRKS) is a penny stock that could benefit in this environment. The value retailer sells everyday items like books, craft items, board games and toys, demand for which is exceeding even the company’s lofty expectations. Like-for-like sales rose 14.5% (on a two-year basis) between May and October. And demand has remained strong since then, the penny stock says, up 9% in the following 11 weeks.

Strong online trading has helped turbocharge demand for TheWorks’ goods too. And I’m confident that continued investment in its e-commerce channel will provide a cornerstone for long-term profits growth. I think the low-cost retailer’s a great buy despite the threat from supply chain problems that could result in stock shortages and higher costs. The Works also faces competition from other retailers operating in the fast-growing value retail sector.

Too cheap to miss?

The Works, at current prices of 63p, trades on a forward price-to-earnings (P/E) ratio of 6.8 times. This is well below the widely-accepted value watermark of 10 times and in my opinion fails to reflect its proven resilience in difficult conditions.

What’s more, City analysts think the company will begin paying dividends soon after axing them at the height of the pandemic. This follows its pledge “to bring forward its review regarding dividends” at last month’s half-year results announcement. This is thanks in large part to the company’s rapidly-improving balance sheet (net cash soared 90% year-on-year to £17.8m as of October).

A total payout of 2p per share is predicted by City forecasters for this financial year (to April 2022). This results in a juicy 3.2% dividend yield. And things get even better for financial 2023. Analysts are predicting a full-year payout of 3.1p. This nudges the yield to an even-better 4.9%. I think The Works is a brilliant penny stock for me to buy today.

I expect demand for Jubilee’s product to rise strongly over the next decade. Firstly, more cars on the road — predominantly in response to rising population and wealth levels in emerging markets — means more catalytic converters will be needed.

Secondly, the amount of PGM content needed in each auto system could continue to climb as legislators try to combat global warming. China’s Stage 6 strict emissions brought in this year could soon draw a response from European and US lawmakers.

I also like Jubilee Metals because production from its South African assets is soaring right now. Total PGM output leapt 23% between January and June from the same 2020 period, to 50,162 ounces.

The process of hauling metal from the ground can be extremely problematic, resulting in lost revenues and unexpected costs. But it’s my opinion that the rewards of owning Jubilee Metals could well offset these potential problems.

A cheap penny stock on my radar

UK retail share Theworks.co.uk (LSE: WRKS) is a penny stock with the wind in its sails. Rocketing demand for its shares following last week’s latest financials means it’s now trading at its most expensive since mid-August. The Works has now gained 115% in value over the past 12 months.

Let’s look at those financials first of all. In better-than-expected trading, The Works said like-for-like sales in the six months to October were 14.5% higher than they were in the same period in 2019. It also said online sales were double the level recorded two years previously.

There’s a lot I like about The Works. I like its decision to scale back store openings in favour of investing in its internet proposition. I like its focus on the value-end of the books, games and crafts market, one which should serve it well in an environment where consumers demand more and more bang for their buck.

I’m also encouraged by the rate at which physical games are selling following the Covid-19 outbreak. The global board games and playing cards market is tipped to grow at an annualised rate of almost 9% through to the middle of the decade.

Today, The Works trades on a forward price-to-earnings (P/E) ratio of just 7.3 times. It’s true that the retailer faces higher freight costs because of a shortage of shipping and road capacity. This also throws up the spectre of stock shortages that could hit earnings hard. Still, it’s my opinion that these risks are more than baked into the penny stock’s rock-bottom valuation.

Like Jubilee Metals, I’d happily buy The Works for my own shares portfolio right now.

I’d buy them for big share price gains in the near term but hold them for years into the future. Give me a few minutes to explain why.

Full steam ahead

The reopening of the UK economy means Hornby (LSE: HRN) can expect demand for its train sets and model cars to pick up considerably. At least that’s my view as shops steadily reopen and consumers feel confident enough to start spending again. Signs of improvement are already beginning to emerge, with Hornby noting “very encouraging” sales in the three months to March.

No doubt the company is also benefiting from the emergence of new ‘hobbyists’ during Covid-19 lockdowns. Beware though, the penny stock markets are notoriously competitive and it will have to work hard to keep revenues rolling in. Demand for its miniatures might also waver if alternative hobbies soar in popularity.

Another penny stock for the hobbies boom

TheWorks.co.uk (LSE: WRKS) is another UK penny stock that’ll benefit from non-essential retailers  reopening their doors. This particular retailer sells a wide variety of goods, from arts and crafts products and books to stationery, toys and games. And, critically, the company sells its wares at low price points, putting it bang in the middle of the fast-growing value retail segment.

There are other reasons I like TheWorks.co.uk too. It stands to gain from the resurgence in arts and crafts following the Covid-19 pandemic. It has also relaunched its web platform and boosted fulfilment capacity to keep online sales booming (these grew 70% in the 11 weeks to 10 January). That said, the business still sources huge amounts of its sales through the traditional bricks-and-mortar channel. So it could lose out near-term as the e-commerce boom continues.

Zip-zip-hooray

A recovery in consumer spending isn’t the only reason why Coats Group (LSE: COA) is, in my opinion, another great reopening stock. With people returning to their workplaces, the pub, the park and everywhere in between en masse, clothing sales in particular look set to take off again. Thus, this penny stock can expect demand for its threads, yarns and trims to fly. Coats describes itself as “world’s leading industrial thread company” while it’s also at the top table of zip manufacturers too. This puts it in the box seat to enjoy the broad recovery in fashion sales.

A word of warning, though. The company faces increasing competition from China (such as SBS in the zips market) which threatens to derail long-term profits growth.

You might have come across one of the firm’s 484 stores, or its website. They sell gifts, arts, crafts, toys, books and stationery. I hesitate to describe the company as a value retailer because I remember the days before the firm was taken over in 2008 by a company called Endless LLP. In my experience, pre-2008, the stores offered unmissable bargains in books and other items but, to me, the in-store prices these days aren’t as compelling as they were. However, Endless LLP reinvigorated the firm’s offering and provided the impetus for the current impressive growth trajectory.

New to the stock market

The company arrived on the stock market with its Initial public offering (IPO) last July, which put its firmly on my radar for interesting opportunities. Well-known successful US investor and trader Mark Minervini said in his book, Trade Like a Stock Market Wizard, that the biggest part of a company’s growth usually occurs within the first five to 10 years following its IPO. He reckons “that crucial period is when management tends to be at its entrepreneurial best.”

Today’s interim results report reveals a net 32 new stores were opened in the six-month period to 28 October, and the firm expects to have opened a net 50 new stores for the full year. There seems no doubt that the management team is ‘going for it’ when it comes to growth. My Foolish colleague Roland Head pointed out that the Card Factory’s founder, Dean Hoyle, invested in The Works in 2015 and became the firm’s chairman.

Roland explained that “Mr Hoyle grew Card Factory from a market stall to a company with annual profits of £50m in just 12 years,” which I think is an impressive indicator of his entrepreneurial credentials. Although he sold a few of his shares in The Works in the IPO, his holding is still an impressive 14%, or so, which means he’s got a lot riding on the outcome of the growth strategy, and he’s aligned with investors like us.

Trading well

The firm said in today’s report that revenue increased by 15% compared to the equivalent period last year, with like-for-like sales up 3.8%, which suggests the firm’s offering is resonating with its customers. Sales momentum continued through the Christmas period, although the company reported a first-half loss rather than a profit, because of the second-half weighting of the business. City analysts following the firm expect robust double-digit percentage advances in full-year earnings, so I don’t think the first-half loss is much to worry about.

The great thing is that the share price has fallen since the IPO. Today’s 135p, or so, puts the forward earnings multiple for the trading year to April 2020 at just over 11, and the forward dividend yield is around 3.5%. I’m tempted to hop aboard the growth story by buying some of the firm’s shares. 

Works’ share price is up by 12% at the time of writing today, after an upbeat trading update reversed some of October’s losses. Do I think this the right time to invest in this potential growth story?

Inside ownership

One attraction is that The Works is chaired by Dean Hoyle, who founded the Card Factory chain of shops. Mr Hoyle grew Card Factory from a market stall to a company with annual profits of £50m in just 12 years.

Mr Hoyle sold some of his shares in The Works in the company’s IPO, but still has a 14.2% shareholding I estimate to be worth about £12m. This should mean his interests are well aligned with those of smaller shareholders.

Several of the firm’s senior managers also have stakes of around 1%, giving them a significant interest in the business.

Are the shares a buy?

The firm’s accounts suggest that this business isn’t quite as profitable as Card Factory. Sales of £192m in 2017/18 generated an operating profit of just £6.2m. That’s equivalent to an operating margin of just 3.2%, well below the greetings card retailer’s figure of 18%.

The Works is also operating with a significant amount of debt. Net debt was £24m at the end of April. That’s twice the group’s adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).

In addition to this, the company is committed to future lease payments of £135m on its store estate.

Analysts expect the firm to report adjusted earnings of 9.1p per share this year, rising by 30% to 11.8p per share in 2019/20. These forecasts put the stock on a price/earnings ratio of 16 for the current year, falling to a P/E of 12.3 next year.

Dividend payments are also expected, with a forecast yield of 2.5% this year and 3.2% next year.

The Works expects to open 50 new stores in 2018/19, and a similar number the following year. If this expansion can be achieved without any loss of profitability, then I think the shares could be a decent buy at current levels.

My concern is that the firm’s slim margins and big store estate leave it vulnerable to rising costs and the high street slowdown. For these reasons, I won’t be investing at this time.

One creative company I do own

Some of The Works’ customers are probably also customers of Harry Potter publisher Bloomsbury Publishing (LSE: BMY).

The schoolboy wizard isn’t Bloomsbury’s only success. The firm also sells academic books and non-fiction ‘coffee table’ titles, for example. Sales have risen from £109m to £161m since 2014, while profits have risen from £7.7m to £9.1m over the same period.

The group’s profit margins are slightly lower than they were, but cash generation remains strong and the group reported a net cash balance of £17m at the end of August.

Since peaking at more than 250p in June, Bloomsbury’s share price has fallen by more than 20% to about 195p. This puts the stock on forecast P/E ratio of 13.4, with a dividend yield of 4.1%

I hold the shares myself and would consider buying more at this level.