I’m searching for a new penny stock to add to my portfolio. And I think Speedy Hire (LSE: SDY) is a company to buy and hold to capitalise on the booming infrastructure and construction sectors.
Penny stock to buy: Speedy Hire
I wrote about Speedy Hire just this week, saying that it has excellent growth potential. I also said that I didn’t think the share price reflected the positive outlook for the company.
Well, SDY released its half-year results ending September on Wednesday. Management said there has been continued strong momentum in the business, and that the company is well positioned for further growth.
Revenue came in at an impressive £186.6m, or a 28.2% growth rate from the same period last year. Profit before tax was even better, increasing to £14.6m, from £4.1m previously. Overall, results were ahead of current market expectations. Four analysts updated their ‘buy’ rating on the stock, with an average target price now of 90.5p. At time of writing, the share price is 68p, so there could be more room to run.
Indeed, market conditions are remaining positive, which I think bolsters the case for further growth ahead. Major projects within the infrastructure and construction sectors are increasing demand for Speedy Hire’s equipment-for-hire services.
The company is also improving its digital capabilities, which should strengthen its market position. Its website boasts a four-hour delivery and collection promise, and a new platform is being built to simplify the customer journey. I think this could boost sales further as online experiences are vital these days.
The bear case for this penny stock
As with any company, there are always risks to consider. Speedy Hire is no different.
The greatest risk, in my view, is a repeat of the lockdowns we experienced in 2020. In fact, the share price was crushed in March of that year. It fell from a high of 86p all the way down to 35p. Covid cases are rising again in Europe, so for me, this is something to keep in mind.
Then there’s the risk of rising inflation. In the results, Speedy Hire said it was able to raise its prices, which offset cost pressures the business experienced. But I remain cautious here as the company won’t be able to raise prices too far without losing customers.
Speedy Hire’s valuation
The shares look reasonably valued considering the growth expectations. On a price-to-earnings ratio, the multiple is 14.5 for this year. This falls to 12 for the following year. I think this is cheap when earnings are forecast to grow in double-digits in each of these years.
Final thoughts
On balance, I think this penny stock is a buy for my portfolio. The growth forecasts are attractive, and analysts are predicting a much higher share price in the months ahead. There are risks to consider, of course, mainly from another economic lockdown. But I’ll be looking to buy the shares.
Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
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