I think these nearly penny stocks could be too cheap for me to miss following recent market volatility. Here’s why I’d buy them both today.
Riding the streaming boom
The vast amount of choice that TV viewers have today has sparked an arms race among the streaming giants. The likes of Netflix, Disney, and Amazon are spending eye-popping amounts on content to attract our attention. WarnerMedia and Discovery plan to raise the bar even further, too: they plan to spend $20bn on programming for their Discovery+ and HBO Max platforms when their merger completes later this year.
All of this bodes well for Zoo Digital Group (LSE: ZOO). This almost penny stock provides a range of production services for broadcasters, movie studios, and streaming companies. These include subtitling and dubbing programming, fine-tuning scripts, and optimising content for local audiences.
Last month Zoo Digital raised its revenue growth forecasts for the current financial year (ending March 2022) to 44%. The tech firm said that its strong order pipeline continues to grow, too, giving it robust profits visibility beyond the medium term. And it said that its appointment as primary vendor for the European launch of a global streaming service “will lead to significant orders commencing in quarter four and delivering meaningful revenues in financial 2023”.
Terrific value for money
Zoo Digital’s earnings outlook looks pretty sunny, then. And this is reflected in current City forecasts. Analysts think the business will bounce back into profit this year following the initial stresses caused by Covid-19. They reckon earnings will jump 141% in the upcoming financial year beginning in April. An extra 52% is forecast for financial 2024 as well. Like all forecasts, these could change based on future developments.
I believe these estimates could make Zoo Digital too cheap for me to miss. They mean that, at current prices of 125p per share, the company trades on a forward price-to-earnings growth (PEG) ratio of 0.5. Conventional investing theory says that a reading below one means a stock could be undervalued by the market.
Another nearly penny stock I’m considering buying
Oxford Metrics (LSE: OMG) is one more almost penny stock on my watchlist today. This UK tech share doesn’t offer the same sort of value as Zoo Digital. But at 105p per share it still trades on a quite reasonable forward PEG ratio of 1.
I like Oxford Metrics because demand for its motion tracking technology is robust. It is used to produce special effects in movies, helping highways authorities monitor traffic flows, and assisting clinicians with administering healthcare. The range of applications for the tech is steadily rising.
It’s why City brokers think earnings at Oxford Metrics will rise 37% in this financial year ending September 2022. They’re tipping profits to increase by 16% next year as well.
Of course Oxford Metrics and Zoo Digital aren’t without risk. The former, for example, needs to invest colossal sums in its products to remain competitive, something that can be a drag on profits growth. Meanwhile Zoo Digital could suffer if demand for streaming services begins to fall. But at current prices I believe these two cheap UK shares are still top buys for my portfolio right now.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
