Rolls-Royce shares are unlikely to double my money in the next 3 years. But this cheap £1 stock might

While I’m bullish on Rolls-Royce shares today, I think it’s unlikely that they will double my money over the next three years. Returns should be attractive over that timeframe, but a doubling of the share price is probably a stretch, in my view.

I own several stocks in which I do see the potential for a ‘double’ in the next three years though. Here’s a look at one.

A proven multibagger

In the small-cap space, one stock I see bags of potential in is Hardide (LSE: HDD). It’s a British company that provides advanced tungsten coatings to increase the life of critical metal parts and has recently enjoyed a string of orders from a major customer in the energy space.

It has produced spectacular returns lately. Over the last 12 months, for example, it has risen from 7.4p to 100p – a gain of around 1,250%.

Management plans to double revenues

Looking ahead, I believe Hardide’s share price can double from here in the next three years or so. There are a few reasons why.

One is that management’s goal is to double the company’s revenues over the next two to three years (after doubling them last financial year). It plans to do this by diversifying its customer base, growing existing key accounts, and expanding to the Middle East.

“We are now focused on doubling revenues again from current year levels and diversifying our customer base over the next few years.”
Hardide CEO Matt Hamblin

If the company can double its revenues, earnings per share should increase dramatically. This should lead to a significantly higher share price.

The stock looks undervalued today

Another reason I see potential for strong gains is that the stock is cheap today (unlike Rolls-Royce). For the new financial year (ending 30 September 2027), analysts expect the company to generate 7.7p per share in earnings, up from a forecast of 5.4p for the financial year just ended.

Taking that 7.7p per share forecast, we get a forward-looking price-to-earnings (P/E) ratio of just 13. That multiple strikes me as too low given that earnings are forecast to rise 43% year on year.

I wouldn’t be surprised to see the P/E ratio rise to 15-18 over the next year or so. This multiple expansion could lead to gains of 15% to 40% and that’s before any increases in earnings.

Combine this potential multiple expansion with the potential for significantly higher earnings per share and there’s scope for explosive returns. Over the next three years, I think the share price could rise from £1 to £2.

Explosive potential

Now, there’s no guarantee that my investment thesis will play out, of course. If demand for the company’s metal coating solutions moderates, the company’s plans to double its revenues could be compromised.

Meanwhile, if the UK stock market experiences weakness, the stock could come under pressure. After all, it’s probably a speculative investment for most investors.

Taking a long-term view, however, I see a lot of potential. I reckon it’s worth a closer look.

Should you invest £5,000 in Hardide right now?

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Edward Sheldon owns shares in Hardide and Rolls-Royce Holdings.