I’m always keeping an eye out for the best stocks to buy now. And that’s what brought Argonomics (LSE:ANIC) onto my radar. The penny stock has been a stellar performer over the last 12 months, rising by over 400%! So what does this business do? And should I be considering it for my portfolio? Let’s take a closer look.
A rising star in the modern agricultural industry
With the world pushing to lower carbon emissions to net-zero by 2050, plant-based meats have gained popularity in recent years. A positive move, considering livestock is actually one of the primary contributors to global greenhouse gas emissions.
The sector does have a few big names already on the public markets, such as Beyond Meat. However, the vast majority remain as private entities. This is hardly surprising given the relative infancy of the industry. Unfortunately, that limits the number of options for investors interested in this growing space. And that’s where Argonomics steps in.
The company is an investment house that uses its capital to secure equity positions with a wide range of private firms. Today its portfolio consists of 15 leading businesses. But these aren’t just limited to plant-based meat producers. Here are a few examples.
Galy is using biochemistry to grow cotton in a lab rather than in a field. Tropic Biosciences is creating genetically modified tropical crops to improve cultivation efficiencies as well as reduce environmental impact. And Formo is producing animal-free cheese.
Looking at the penny stock’s financials
Most penny stocks are priced that way for a good reason. These companies tend to have poor financial standing and struggle to get off the ground. So imagine my surprise to discover that Argonomics doesn’t appear to fall into that category.
As of the end of December 2020, the firm had around £2.5m of spare cash on its balance sheet with an additional £26.9m of investments. Given that Argonomics only has £1.7m of liabilities, £0.1m of which are due in the next 12 months, I think it’s fair to say that its financial position remains strong.
Having said that, this is far from a risk-free business. In its last fiscal year (June 2019 to June 2020), the group managed to record a small profit of £0.65m. This was driven entirely by the appreciation of its equity investments. The most recent interim report shows that these investments have continued to gain value, rising by another £0.48m. Unfortunately, profitability went out the window because the company suffered a £1.5m loss, due to currency exchange rates.
There are financial instruments available to mitigate foreign exchange risk. However, these are very complex and require a high level of skill to use correctly. Given its small size, I think it’s unlikely that Argonomics has the resources necessary to mitigate this risk. In other words, foreign exchange may continue to be a prominent threat over the short term.
The bottom line
I can’t deny this is a risky business, especially considering it’s floating at a lofty valuation of £230m. But as penny stocks go, Argonomics, in my opinion, has the potential to explode over the long term. That’s why I think it could be one of the best stocks to buy now. But it will definitely be a small position within my portfolio.
Zaven Boyrazian 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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