Picked well, penny stocks have the potential to dramatically improve my wealth in a short period of time. This is especially true if I hold them in a Stocks and Shares ISA. Doing so means I won’t need to pay tax on any profits I make. 

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Today, I’m returning to look at a company that’s been on my watchlist ever since it was listed in June 2021. Should I finally dip my toe in the water?

Penny stock disaster

Based on recent performance, it’s just as well I’ve held back from pulling the trigger on bathroom specialist Victorian Plumbing (LSE: VIC). From jumping to a 52-week high of almost 342p early on, the share price has since collapsed 75% to 85p. What on earth’s happened here?

I don’t think there’s one single factor to blame. As I remarked at the time, it’s clear that Victorian Plumbing’s IPO was opportunistic and designed to coincide with the boom in DIY seen since the beginning of the pandemic. This allowed original investors to make an absolute killing. And I can’t really blame them for wanting to achieve the best price possible for their stakes. 

The issue with being the largest IPO ever on the junior AIM market is that new investor expectations jumped ahead of reality. Since those heady days, Victorian Plumbing has experienced issues with its supply chain (like many other businesses). Revenue growth has also slowed as the rush to buy new bathroom suites replaced with spending on other things.

Buy the (big) dip?

On the one hand, I’m now able to buy stock in a cash-generative company for 17 times earnings, based on analyst forecasts. That’s not screamingly cheap but nor is it is eye-poppingly expensive. Interestingly, VIC also has a PEG (price/earnings-to-growth) ratio of just 0.5. Anything less than one suggests new buyers are getting a lot of bang for their bucks. 

I’m also attracted to Victorian’s online-only/capital-light business model. It’s already profitable (in contrast to a lot of highly-valued fluff out there) and there’s a decent amount of cash on the books.

Furthermore, the company has a sizeable share of the market and customer reviews are generally very positive. To round things off, CEO/founder Mark Radcliffe retains a huge 47% stake. If anyone wants the company to bounce back, it’s him. 

But let not get ahead of ourselves. An obvious risk with this penny stock is that things could get worse before they get better. A military conflict in Eastern Europe has the potential to hit growth stocks like this, even if it’s irrelevant to selling bathrooms. Margins look like being squeezed for the foreseeable future too.

Victorian Plumbing also has a small free float. Just 35% of the company’s stock is available to trade in the market. That could exacerbate an already bad situation. It only takes a small amount of selling to really move the needle. On a more optimistic note, the reverse is also true. 

My verdict

I do feel like the (prolonged) sell-off of this penny stock has been overdone. Nevertheless, I’m inclined to wait until after this month’s AGM (and a potential update on trading) before deciding whether now is the time to strike.

For now, this penny stock stays on my ISA watchlist.

Paul Summers 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.

After quite a turbulent 2020, the International Consolidated Airlines (LSE:IAG) share price could be set to surge this year. While the stock is still trading firmly below pre-pandemic levels, it’s already climbed by double-digits since the start of 2022.

But can it continue to trend upward? And is now the time to add this business to my portfolio as a recovery investment? Let’s explore.

The IAG share price potential

It’s not hard to understand why this company took a beating at the start of the pandemic. With travel restrictions put firmly in place, the revenue stream dried up. But operating an airline business still has plenty of fixed costs even if the planes aren’t flying, such as airport fees, and maintenance.

With massive losses accumulating, it’s hardly surprising that the IAG share price collapsed by over 65% in 2020.

Fortunately, it seems the company was able to weather the storm. And while the travel sector has yet to fully recover, the operating environment is improving. Looking at the latest trading update, passenger capacity has jumped from 21.9% to 43.4% of 2019 levels. Meanwhile, its cargo transport exploits have reached 73.4% of pre-pandemic levels.

There’s obviously still a long way to go. But things seem to be moving in the right direction. And the recovery progress may have just been accelerated as Australia announced the re-opening of its borders to international travellers last week. As confidence returns to the sector, IAG could be set it hit its recovery milestones this year, sending its share price up in the process.

Taking a step back

As encouraging as the progress of the industry and IAG has been, there are still challenges ahead. The most obvious being a potential resurgence of Covid-19. If infection rates rise again, it’s possible that travel restrictions will be tightened once more.

Something else that’s caught my attention is heating competition within the short-haul market. For the most part, IAG focuses on long-distance journeys. However, management has been ramping up its investments into the short distance flight arena. And with Ryanair incentivising travellers with big discounts, the group’s pricing power over tickets is basically non-existent.

In other words, the company will likely be forced to cut ticket fares to retain customers. That’s obviously doesn’t bode well for IAG or its share price.

The bottom line

While the stakes are high, the company could be about to enjoy some favourable tailwinds. Management was aiming to hit a 60% passenger capacity level by the end of 2021. Whether that target was reached is currently unknown and will be revealed in the upcoming results later this month.

Assuming this goal is achieved, revenue could quickly start heading back in the right direction, with losses getting smaller at the same time. This could be enough to convince investors the worst is over, and the IAG share price could surge because of it.

So is now the time to buy? Personally, I’m going to wait for the full-year results to come out so I have a clearer picture of the recovery progress before committing to any investment in 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.

Investing in penny stocks can often be a hair-raising experience. However, as I explained in the previous article of this series, buying low-cost UK shares like these can also set investors on the path to making gigantic returns.

Last time out, I analysed a few top-quality penny stocks I think could prove terrific investments for me. I think the following small- and micro-cap shares might also help me to make a mountain of cash.

Coats Group

The clothing needs of a rapidly growing global population create plenty of opportunity for Coats Group (LSE: COA). As a major manufacturer of trims, zips and threads, this penny stock plays a vital role in garment production. And it is taking steps to build its market share by improving its sustainability credentials. It’s a tactic that seems to be paying off too.

Revenues from Coats’ EcoVerde line of recycled sewing threats increased fivefold in the first six months of 2021. The company recently launched its EcoRegen range of biodegradable threads in the hope if replicating this success too.

At current prices, Coats trades on a forward price-to-earnings growth (PEG) ratio of 0.8. A reminder that any reading below 1 suggests a stock could be undervalued. I’d buy the business even though demand for its products could sink during economic downturns.

Agronomics Limited

The number of people either eliminating or reducing the meat in their diets is ballooning. Rising concerns over animal welfare and the environmental impact of livestock farming means that numbers are expected to keep rising sharply too.

But there are still plenty of people who like the taste and texture of meat-based products. This is where Agronomics Limited (LSE: ANIC) bridges the gap. This penny stock invests in companies at the cutting edge of the synthetic meat industry. These include lab-grown beef producer Mosa Meat, cultivated crustacean manufacturer Shiok Meats, and even animal-free pet food maker Bond Pet Foods.

Analysts at McKinsey & Company think the synthetic meat industry could be worth $20bn by 2030. That’s under its medium-growth forecasts which suggests a market value of $1bn by 2025. The market opportunity for Agronomics is clearly huge.

There are many specialised companies in the animal-free food category which Agronomics has to compete with. It also faces colossal challenges from major food manufacturers such as Tyson Foods who have the clout to make life very difficult. Still, I think the quality of the companies that Agronomics invests in could still make it an industry winner.

Science in Sport

The steady change in people’s diets, and in particular rising demand for protein products, is something that Science in Sport (LSE: SIS) also looks set to exploit to the max. This penny stock manufactures protein powders (and other sports supplements) under its ultra-popular brands PhD and Science in Sport.

The importance of living a healthy lifestyle has really gained traction in recent years. Sports participation has leapt and so has demand for Science in Sport’s products — sales at the company rocketed 25% in 2021.

Industry analysis suggests that the company’s market will keep growing at breakneck pace too. Analysts at Grand View Research think the global sports nutrition market will expand at a compound annual growth rate of 8.5% between 2022 and 2030.

I like Science in Sport because of the quality of its products. I also like the company’s strategy of building brand strength by building relationships with elite athletes and sports teams across the globe. The sports nutrition market is highly competitive, but I think this penny stock has the goods to make a splash.

DP Poland

Online food delivery is another industry set for explosive growth over the next decade. One UK share I’m considering buying to capitalise on this is DP Poland (LSE: DPP). I’m tipping takeaway market growth to be particularly explosive in this Eastern European emerging market as people’s incomes sharply rise.

This penny stock is the master franchisee of the Domino’s Pizza label in Poland. This is a big deal because the 62-year-old US chain has one of the strongest brands in the business. I believe it’s one of the reasons why DP Poland’s sales are soaring right now. Like-for-like sales in the final quarter of 2021 jumped 15.6% year-on-year. They were also up 11% from the corresponding 2019 period.

My main concern for DP Poland is the possibility of lasting cost pressures. Indeed, the business says that rising labour and food costs would cause it to miss profits forecasts for 2021 despite those soaring sales. Still, in my opinion, I think the potential rewards of owning this British stock offset the risks. Researcher Statista thinks the Polish online food delivery market will more than double in size between 2021 and 2025.

Van Elle Holdings

I think the stars are aligned for ground contractor Van Elle Holdings  (LSE: VANL) to experience strong revenues growth this decade. As with Brickability (which I tipped as a top stock to own in the first part of this article), I think demand for its services will soar as housebuilding in the UK revs up. I also think sales at Van Elle will boom as infrastructure spending on these shores steadily increases.

Activity at the penny stock took a beating in 2020 due to Covid-19-related stoppages. The threat for more disruption remains too as the public health emergency drags on. But, in my view, the possible rewards of holding Van Elle in the years to come outweigh the dangers. The company is a market-leader in the field of infrastructure creation and it’s tipping conditions across its core sectors to remain strong moving into next year at least.

I’m also thinking of buying Van Elle because of its bright dividend outlook. City analysts are expecting dividends to return in this fiscal year (to April 2022) following recent cancellations. And they’re expecting them to rise sharply over the next few years too, thanks to Van Elle’s strong trading outlook and robust balance sheet.

This means the company’s 0.9% dividend yield for this year leaps to 3% and then to 4.5% in financial 2023 and 2024 respectively.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Coats Group. 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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Shares in growth penny stock MADE.com (LSE: MADE) have slumped 60% since its IPO in June last year. The company’s market value has been cut in half as investors have dumped highly valued growth equities as the economic outlook has become more uncertain. 

However, I think this could be an opportunity for long-term growth investors like myself to snap up a few shares in this expanding UK business. 

Penny stock growth opportunity 

Even though shares in MADE have been under pressure over the past couple of months, the company’s underlying fundamental performance is nothing to be sniffed at. 

According to a trading update published at the beginning of the year, sales increased 38% during 2021 to £434m. Compared to pre-pandemic levels, sales were up 79%. What’s more, the overall active number of customers increased 26% to 1.3m. 

As well as its existing business, the company is also pursuing a major growth initiative in its marketplace offer. The group is building an online platform for designers, artisans and smaller brands. These users can leverage the site and infrastructure to reach a wider number of consumers and process orders. 

This is similar to the model Amazon pioneered with its Amazon Marketplace division, which has become a significant profit generator for the group. 

These are the two primary reasons I think MADE is an attractive growth penny stock to buy today. The company’s flagship business seems to be firing on all cylinders, and its marketplace initiative could provide significant additional growth in the years ahead. 

That said, the company also has to overcome some significant headwinds. These include the supply chain crisis, which is having an impact on overall group order lead times, and higher prices. And while the marketplace initiative could become a significant profit centre for the business, this is a competitive space. MADE will have to fight other online giants for a piece of the global retail industry. 

Good resources

Still, despite these headwinds, the group has the resources available to fight for market share. At the beginning of January, the company had cash resources of over £100m.

Based on current analyst projections, this will be enough to support the business until it is profitable. Analysts believe the firm will lose money in its 2021 and 2022 financial years. However, they are projecting a small profit for 2023. 

Of course, there is no guarantee the company will hit these growth targets. Nevertheless, I think they illustrate its potential over the next few years. As such, I would be happy to acquire the fallen star for my portfolio as a speculative growth penny stock.

As MADE cements and develops its place in the online furniture market, I think it can gain market share. Ultimately, this should help boost the company’s profit margins and provide more capital to reinvest in growth initiatives, supporting additional sales and earnings growth. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon. 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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Based on today’s Royal Mail (LSE: RMG) share price, I could have doubled my money if I bought the shares in September 2020. That’s a little under 18 months. I would’ve been thrilled with a 100% return in that short time period!

But I need to understand if it’s possible to double my money today. The share price has fallen from its high of over 600p (it’s only 430p as I write). Let’s take a look if I could generate a 100% return from here.

The investment case

The rise in the Royal Mail share price was kick-started back in September 2020 by the company saying: “We have seen a substantial shift in our business from letters to parcels. The strong growth in parcel volumes is being driven by B2C and e-commerce”.

Because of this, Royal Mail was generating better-than-expected revenue. Then, in the full-year results to 28 March 2021 (FY21), the company said its performance was “well above initial expectations driven by strong parcel growth”.

The pandemic certainly shifted shopping habits online, which has had a positive impact on Royal Mail’s parcel delivery services. For me, this is a key growth driver, and a reason to consider buying the shares.

Also, Royal Mail’s cash flow generation is expected to be strong in the following years. Analysts are expecting a free cash flow yield of 10%+ from FY22 through to FY24. This should translate into growing dividends, and potential share buybacks.

Issues to resolve

Things haven’t been plain sailing for Royal Mail, though. In fact, the company is undergoing a transformation at present to streamline its business. It’s going to involve significant investment as it focuses on digitalising its services, and expanding internationally through subsidiary GLS. This is an important step for the company, particularly as it has recognised the need to adapt from a traditional letters delivery service to parcels. Nevertheless, it’s a big project, and will come with significant risks if it’s not executed right.

Something else to note are the cost headwinds both Royal Mail and GLS are experiencing today. If this escalates, then profit expectations will surely decline. This will weigh on any share price gains.

Could the Royal Mail share price double?

The big question for me is: can I double my money if I buy Royal Mail shares today? This means the share price would need to reach 860p.

There are two factors that could make the share price double: explosive earnings growth, or an increasing valuation.

I don’t think earnings will explode from here. Royal Mail did get a significant boost from e-commerce sales during the pandemic. But I don’t see this repeating at quite the same rate today. Indeed, earnings growth for FY22 is expected to slow to 14% from the previous 165% in FY21. 

Then, based on a price-to-earnings (P/E) ratio, Royal Mail shares are valued on a multiple of 7.5. The P/E ratio would need to double to 15 if I was going to double my money. I just don’t see this happening, either, given that the growth rate it slowing.

So, I can’t see the Royal Mail share price doubling from here. The company is going in the right direction, in my view. And there might be a growing dividend to come. But I wouldn’t buy the shares if I wanted to double my money.

Dan Appleby 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.

Key points

• With an interest rate hike imminent, the bank may benefit
• A relatively low forward P/E ratio suggests the Lloyds share price is cheap
• Ratings have been steadily improving for this company in recent months

Up 45% from one year ago, Lloyds Banking Group (LSE: LLOY) is a big-hitter within the global banking industry. Like a number of other stocks, the Lloyds share price plummeted when the pandemic hit, almost halving in value. With an interest rate hike on the horizon, however, could this stock now be considered too cheap to miss? Should I be adding it to my portfolio? Let’s take a closer look.

Interest rates 

Interest rates have a big impact on the firm, because these dictate how much it can charge customers to whom it lends money. Since the financial crash of 2007 and 2008, UK interest rates have always been below 6%. Following the outbreak of the pandemic, they fell to just 0.1%. 

That may have been good news for borrowers, but the effect on Lloyds was that its profit margins were cut. This was chiefly because it was compelled to offer more competitive mortgages and loans. Indeed, way back in February 2020, CFO William Chalmers stated: “There’s no question that the environment presents its challenges, principally in the context of the low interest rate environment. But we do see our business model being the right one.”   

It is understandable that investors would view this interest rate climate with some alarm. However, it is likely that the Bank of England will hike interest rates in the coming months. Indeed, it has already begun to do so. With more hikes on the horizon, I think things will start to look up for the Lloyds share price.

The Lloyds share price is cheap

What’s more, it appears that I would be getting a bargain with the Lloyds share price right now. This is because the forward price-to-earnings (P/E) ratio suggests the company is undervalued. With a forward P/E ratio of 7.77, Lloyds is significantly lower than competitors, like Standard Chartered. The latter has a forward P/E ratio of 8.96

Indeed, ratings for Lloyds have been improving through time. Deutsche Bank recently reiterated a ‘buy’ rating for the stock, but increased the target price from 60p to 63p. Furthermore, Citi also stated the business was a ‘buy’ in December 2021.

All of this is very encouraging and, with a dividend yield forecast of 4.8% as mentioned by my Motley Fool colleague Roland Head, it may be helpful for generating passive income.    

I think the future is very promising for the Lloyds share price. If interest rates rise, which I suspect they will, this may translate into higher revenues for the bank. While further pandemic variants are always a threat, I think this stock is cheap and I will be buying straight away. 

Andrew Woods has no position in any of the shares mentioned. Citigroup is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has recommended Lloyds Banking Group and Standard Chartered. 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.

As I wrote last month, I think Boohoo Group (LSE: BOO) could be one of the three best stocks to buy now. I highlighted that the shares had fallen 70% in the previous 12 months so were cheaper than they were five years ago. With the Boohoo share price continuing to fall since then, my belief that the shares could be the steal of the decade has solidified.

The pros and the cons

The cons of investing in Boohoo have been well covered in recent months — ESG concerns, high levels of customer returns, supply chain issues, cost of living crisis and slower US growth. In other words, a lot for management to deal with. However, there seems to be a bit of a case of kicking a man when he’s down and without meaning to mix my metaphors, commentators and analysts jumping on the bandwagon. The herd thinks Boohoo is becoming ex-growth, or that growth will slow significantly. But is that really the case?

In 2019, earnings per share (EPS) grew by 53.3%, in 2020 by 26.7% and in 2021 by 44%. By my reckoning that’s very impressive for an AIM-listed share. ASOS’s EPS over the same timeframe was -69.8%, +322% and -2.9%. The latter has also lost its CEO and chairman in recent months. I like ASOS as it happens, but Boohoo seems to be the more stable and consistent fast fashion e-commerce retailer right now.

The expectation is for its EPS to fall to 86.4p in 2022 and then rise back up to 118.8p in 2023. There’s the potential that if Boohoo outperforms these lowly expectations, the shares could re-rate quickly and in turn, the price could rise.

Boohoo has always reinvested into generating future growth and has not paid dividends. From my perspective, it seems the chance that it stops growing is unlikely. That’s why there could be a lot of upside to the current share price because investors’ expectations are just so low.

Is the Boohoo share price really a steal?

However, in the short term it’s nearly impossible to say whether Boohoo will reverse the falls of the last 12 months, or continue to trade at new lows. It’s a binary bet.

Looking longer-term though, the odds of the shares going up are potentially, much better. I’d only invest in a share for its long-term potential. On balance Boohoo’s risk-to-reward ratio looks very favourable and given the ongoing growth of e-commerce, I do think the shares are a steal at the current price. I feel the market overall is way too pessimistic about what an entrepreneurial management can achieve. Boohoo has come a long way and I think has a lot more international growth to come, as well as a strong brand in the UK – as evidenced by millennials still buying its products and by its UK sales. 

With the Boohoo share price having fallen sharply, it remains likely I’ll start to buy the shares in the coming weeks.

Andy Ross owns no share mentioned. The Motley Fool UK has recommended ASOS and boohoo group. 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.