It is not very often that I come across stocks that tick almost all boxes. Like this one does. It is a penny stock, which means that I can buy a bigger share of a hopefully growing company than would be otherwise possible. And it is indeed growing. This is apparent from the fact that its stock price is up by 115% in the past year alone! Moreover, it is also dirt-cheap in relative terms. Its price-to-earnings (P/E) ratio is a really low 4.9 times.
Vertu Motors’ gains ground
The stock I’m talking about is the AIM-listed Vertu Motors (LSE: VTU), the UK-wide franchised dealer for all kinds of vehicles. Besides the fact that its stock price performance is promising, there is a lot going for it from the perspective of fundamentals as well. The company’s recent trading update released last week, is robust. It has upgraded its pre-tax profit expectations for the year ending 28 February 2022. The number is now expected to be no less than £70m. The company had earlier believed that the figure would be £65m.
It is also expanding. Earlier this week, it said that it is acquiring two Toyota dealerships for £9.2m. The transaction will be funded through its own cash. And it is expected to add to Vertu Motors’ earnings from its next financial year onwards. I have to admit that I scoured for the sources of funding for the acquisitions before reading other details. This is because the present times are uncertain. And they have been so particularly for the travel industry, and that includes Vertu Motors. Taking on debt at this time might be risky, in my view! So, it is good that the company is funding it from its own resources.
Challenges for the AIM-listed stock
As always, though, there are challenges to watch out for. In its trading update, for instance, Vertu mentions that it “remains cautious on the future outlook with the potential of further disruption from Covid-19 to our resource levels, consumer confidence and global supply chains”. As far as Covid-19 is concerned, we are indeed seeing disruptions now. Scotland has already imposed some restrictions, and I am seeing increasing news flow on a probable lockdown in England soon, as well. We do not know if it will happen or not. What we do know is that such news could be bad for the penny stock.
Would I buy the penny stock?
So would I buy the stock now? Absolutely. I think the odds are still in favour of the stock. I reckon that even if things go south in terms of Covid-19, they would probably not be as bad as what we have seen in the past. And even during that time, Vertu Motors was able to sustain some profit, even though its earnings took a hit. I think that is noteworthy. I would buy the stock.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Vertu Motors. 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.
