The idea of seeking value in penny stocks might seem strange to many investors. After all, penny stocks have a pretty bad reputation. These tend to be smaller businesses which lack the checks and balances usually in place at larger enterprises. As such, they have a higher risk of failure.
Despite these risks, smaller companies can grow faster than their larger peers in the long run. Small businesses also tend to have more flexibility and fewer layers of management. This means they can quickly adapt and change to different economic environments.
The law of big numbers can also hold back larger organisations. A company with revenues of £100m a year is much more likely to achieve double-digit sales growth than a corporation with revenues of £10bn.
Considering all of the above, even though penny stocks might have more growth potential, these smaller businesses might not be suitable for all investors.
However, I’m comfortable with the level of risk involved in buying penny shares. And there’s one company on the market that stands out to me right now as an incredible opportunity.
Value in penny stocks
Air Partner (LSE: AIR) has a market capitalisation of just over £61m, at the time of writing. Meanwhile, shares in the company are valued at just under 100p.
I’ve been following this organisation for some time. The global aviation services group started as a private jet broker, but it has been expanding into different sections of the market in recent years.
Air Partner uses a buy-and-build strategy. The company’s taking profits from its private jet-broking division and using these to acquire new businesses in different parts of the aviation sector.
For example, in August, it acquired Kenyon International Emergency Services, which is the world’s leading full-service disaster management company.
These acquisitions complement the group’s existing portfolio. Indeed, Air Partner’s services have previously been required in international evacuations, part of disaster management.
Windfall profits
The growth strategy pursued by the group is the main reason I think this is one of the best penny stocks to buy now.
Air Partner has also recently benefited from windfall profits, thanks to the pandemic. Underlying profit before tax in the first half totalled £3.8m, up 26.7% on 2019.
Rising demand for private jets, freight and ancillary services all helped the group’s top and bottom lines.
As management continues to reinvest in growth, I believe Air Partner will continue to expand. The group’s also returning cash to investors. The stock offers a dividend yield of 2.7%, at the time of writing.
Some challenges it may face in the future include competition and restrictions on flying, due to environmental concerns. The company may also suffer a drop in demand in an economic downturn, which will likely hurt demand for private jet flights.
Rupert Hargreaves 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.
This post was originally published on Motley Fool
