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Penny stocks: 1 I own and 1 I’d love to buy

Young black man looking at phone while on the London Overground
Image source: Getty Images

Some penny stocks have the ability to soar and become massive businesses. FTSE 100 incumbent Ashtead (AHT) is a prime example.

I already own Topps Tiles (LSE: TPT) shares, and reckon it could continue to grow and move out of small-cap territory. I’d love to buy DP Poland (LSE: DPP) shares when I next can.

Here’s my thinking around both stocks!

DP Poland

DP Poland franchises the Domino’s Pizza brand, specifically in growing and emerging markets.

The shares have edged up 11% over a 12-month period from 9p at this time last year, to current levels of 10p.

I’m excited by DP’s future prospects. This is linked to the fact the business is targeting under-penetrated fast food markets such as Croatia and Poland. Demand for such food is beginning to take off here.

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As with all stocks, there are risks and worries. These can be exacerbated for smaller stocks. In relation to DP, inflationary pressures are a concern for me. As costs are rising, there is a chance this could take a bite out of profit margins. These same profits underpin future growth, as well as potential investor rewards.

Moving to the other side of the coin, DP looks like it’s in a good position to grow at present. It possesses a healthy balance sheet, which is vital. A lack of cash and too much debt is often the reason penny stocks fail.

Finally, recent performance has been excellent. The final quarter for 2023 was the firm’s best quarter recorded to date. Like-for-like sales rose a mammoth 27.5%. More recently, like-for-like sales both rose in Croatia and Poland for the firm by 19.4% and 16.4% as reported in January.

Topps Tiles

Tiles, flooring, and home improvement retailer Topps Tiles has been around for a long time but it still remains a small-cap stock. Nevertheless, I view it as a solid investment right now.

The shares are down 14% over a 12-month period from 48p at this time last year, to current levels of 41p. This drop could tempt me to buy more shares.

Two issues concern me when it comes to Topps shares. Its large retail presence may come under pressure from changing shopping habits, namely online shopping. The other issue is the costs associated with renting or owning, and maintaining so many brick and mortar outlets. Growth and returns could be impacted if costs soar.

Conversely, Topps market share and position is enviable. It has a good historical track record of performance. However, I do understand the past is not a guarantee of the future.

Next, the shares offer a juicy dividend yield of over 7%, so the returns alone are tempting. However, I’m conscious that dividends are never guaranteed.

Finally, future prospects are positive, in my eyes. The demand for housing outstripping supply means the future could be lucrative. Whenever this gap is plugged, Topps’ market position could lead to a spike in sales as everyone needs tiles and flooring.

The post Penny stocks: 1 I own and 1 I’d love to buy appeared first on The Motley Fool UK.

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Sumayya Mansoor has positions in Topps Tiles Plc. 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.

Motley Fool UK 2024