Buying penny shares can be a bumpy ride even during calm periods. It can be especially hair-raising when broader financial market volatility is high and worries over the global economy abound, like today.
Yet this elevated risk also brings the potential for market-beating returns. As these smaller companies grow earnings, their share prices can increase rapidly.
One way that investors can try to balance risk is by buying penny stocks at rock-bottom valuations. This provides a margin of safety that can prevent a share price washout if company-, industry- or economic-related news disappoints.
With this in mind, here’s a great sub-£1 UK share I think is worth serious consideration right now.
Gold star
Gold prices have retraced below the technically (and psychologically important) level of £3k an ounce in recent hours. With this marker breached, it’s possible that selling of the precious metal could accelerate.
However, I believe there’s also a strong chance of a gold price rebound. So small-cap miner Serabi Gold (LSE:SRB) could be a great stock to consider.
Recessionary risks and rising inflation — both of which are being fuelled by tariff-related tension — remain significant potential drivers of bullion prices. Geopolitical uncertainty is also on the rise, which in turn is fuelling strong central bank purchasing.
These institutions recorded net purchases of 24 tonnes during February, the latest World Gold Council data shows.
The price is right
I’m not alone in my bullish assessment for gold prices, either. Edison analysts believe an ounce of bullion could rise as high as $4,500, which could thrust Serabi Gold’s profits through the roof.
All-in sustaining costs (AISC) were $1,790 per ounce in the nine months to September, considerably less than even current prices around $2,970.
That said, it’s worth bearing in mind that Serabi’s costs have been rising more recently. Higher mine development costs caused AISC to increase 15.2% year on year between January and December.
Yet these greater expenses reflect Serabi’s work to raise production and reduce costs over the longer term. Total production of 37,520 ounces in 2024 — helped by output reaching five-year highs in Q4 — is expected at 44,000-47,000 ounces this year.
The African miner hopes to grow output again in 2026, to 60,000 ounces.
Top value
Despite the bright gold price outlook and its impressive operational record, I think Serabi’s share price still offers excellent value.
City analysts think annual earnings will rise 68% year on year in 2025. This means its forward price-to-earnings (P/E) ratio sits at 5.1 times.
That’s not all, with Serabi’s corresponding price-to-earnings growth (PEG) ratio sitting well below 0.1 Any reading under 1 implies that a share is undervalued.
Serabi shares are up 92.8% over the last year. I think there’s a high chance they will keep appreciating strongly in 2025 and potentially beyond, with gold’s bull run now stretching into its third year.
This post was originally published on Motley Fool
