Penny stocks are usually defined as companies with a share price below £1 and a market-cap below £100m. This fits the category of new growing businesses, or potential fallen angels. Yet given the small-cap nature of these ideas, investors need to be careful when considering whether to buy or not. Here’s one company to add in the mix.
Details of the firm
With a market-cap of £72m and a share price of £95p, Bango (LSE:BGO) just sneaks in as a penny stock. It’s a tech company specialising in payment and data monetisation solutions. This sounds rather fancy, but the reality is that it provides a platform for bundling multiple digital services into a single payment.
This main product is known as the Digital Vending Machine, allowing businesses to bundle their products together. It has some large clients on the books, including Netflix, Disney and Amazon.
Bango makes money by charging a small fee on each transaction, as well as selling anonymised payment data to marketers and app developers. In the H1 2024 report, it showed financial progress. Revenue was up 19% versus the same period in 2023. It posted an adjusted EBITDA of £3.2m, up from the loss of £0.16m.
The share price fall
All of this sounds great, with a good idea and big clients. Yet the share price is down 52% over the past year. This is why some have flagged it as a potentially cheap stock.
One of the reasons for the fall came early in 2024 when the full-year results for 2023 showed a large increase in the loss after tax. It grew to £7m, larger than the £1.68m loss from the previous year. This was blamed on higher administration costs due to company acquisitions, as well as a negative impact from foreign exchange movements.
Another concern is cash flow. The business entered 2024 with a negative cash position of £3.12m, which isn’t good. The CEO commented in the summer that they “remain on track to return to a positive net cash position in FY25”.
Finally, let’s not forget that this is a penny stock. Large share price swings have to be expected due to the nature of the low transaction volume and the fact the market-cap’s small.
A potential cheap pick
The annual report noted that “the subscriptions market is estimated to reach $600bn by 2026”. There’s a large and growing market for this area, which Bango’s well placed to take advantage of.
Therefore, some might flag this as a cheap stock based on the future potential revenue based on the market size.
The fall in the share price is another reason why some might consider the stock to be very cheap. Yet even though some might think it’s undervalued, it does require some caution. The combination of losing money and cash flow problems is a worry, especially with a small company. Therefore, I believe it’s a high-reward but high-risk idea to consider.
This post was originally published on Motley Fool
