As I’ve flagged several times before, not all penny stocks are bargains. But I could find a penny stock that is actually overvalued! I’m looking for two main types here. Firstly, stocks that have fallen significantly, so that the share price is now below £1. Secondly, stocks that are performing well, and might break above the £1 mark soon. Here are two examples where I’d consider investing a total of £1,000 this month.
A penny stock that has halved in value
First up is Made.com Group (LSE:MADE). It has a share price of 96p at the moment, having fallen from its IPO price of 200p last spring. This is a hefty slump in less than one year, as the company has battled with supply chain disruptions.
In the December trading update, it revised down revenue and adjusted EBITDA. In fact, adjusted EBITDA went from being positive to having a forecasted negative £12m-£15m figure attached.
This is the key risk going forward, in that the business struggles to get products to customers. However, it said that regarding the supply chain “the group has built stock positions to deliver significantly better lead times to consumers for 2022 and beyond as orders placed with suppliers are now in or close to our warehouses.”
Another update on financials in January showed that gross sales are up 38% year on year, highlighting that demand is there from consumers. Therefore, if the supply chain issues can be resolved, I think the penny stock could see the share price climb from current levels.
An idea on the lithium surge
The second company that I’d put £500 in is Zinnwald Lithium (LSE:ZNWD). I recently wrote about lithium stocks in more detail, that can be read here. The reason why I like the businesses that it’s at the exploration end of the sector. Given the large rise in the price of lithium over the past six months, the company should be able to benefit from this.
The project is located in Germany, with approved licenses and a mine life of 30 years. Zinnwald specifically is catering to “supply high value lithium products to Europe’s rapidly growing EV and energy storage markets.” Given the growth in the electric vehicle (EV) market in the past year, I’ve no doubt about the demand going forward.
The penny stock has seen the share price rally 27% in the past year. Yet at 16p, there’s still plenty of room to run higher before it trades above 100p. I personally don’t think that the stock is on many investors’ radars. If and when it does, then the share price could take off.
However, I do need to be conscious of the risks. This isn’t a stable play by any means. If the project doesn’t pay off as expected, or if the EV sector develops to a stage where lithium isn’t a key need, Zinnwald could really struggle.
Jon Smith and The Motley Fool UK have 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.
