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I love hunting for ‘cheap’ shares when the market takes a dip. But a lower price doesn’t automatically equate to good value – especially when looking at penny stocks.
Sometimes, the business was already facing problems and the crash just made things worse. And if the market-cap was already tiny, the risks ramp up.
Still, there are some quality micro-caps that may be very worth considering at a slightly lower price. The two I’m focusing on today trade below 100p with market values between £60m and £70m. Yes, those valuations are already small – but that doesn’t always mean cheap.
Speedy Hire (LSE:SDY) and Topps Tiles (LSE:TPT) both qualify on recent figures. They’re worth investigating during a sell-off, but neither gets an automatic place in my portfolio. What matters is whether their businesses can justify the investment case.
Speedy Hire
Speedy Hire closed at 13.3p on 21 October, giving the equipment hire business a £61.32m market value. Analysts see considerable potential but they’re not exactly in agreement. Four analysts I researched gave 12-month targets ranging 24p-53p, with a median of 32.1p.
That gap caught my attention. What’s going on with the company’s financials that the experts assessing it arrive at such different conclusions?
Looking closer, there’s some reason for caution. Revenue for FY2025 slipped slightly from £416.6m to £416.1m and adjusted EBITDA dropped 12% to £85.4m. Any real price recovery might need something more encouraging.
Before buying after a dip, I’d check three things:
- Have earnings forecasts stabilised, or are expectations still falling?
- Is the business generating enough cash after essential spending?
- Can its finances withstand another difficult trading period?
A further price fall only strengthens the opportunity if the business outlook hasn’t deteriorated equally badly. It’s definitely on my list, but even a price dip wouldn’t have me dive in blind before rechecking the numbers.
Topps Tiles
Topps Tiles recently traded near 36p, with a market value close to £70m. Its 1 October update offered something more tangible than a distant price target. Expected adjusted pre-tax profit for the year ended 26 September remained in line with company-compiled consensus of £6.6m.
Most notably, its Pro Tiler Tools division delivered record revenue of around £42m, up 18.2%. That looks great until you notice that group revenue fell around 1.3% to £292m, partly due to store closures.
So rather than just buying on a price dip, I’d need to assess whether one strong division can improve the whole group’s performance.
Revenue growth doesn’t always equate to profits or cash. I’d need to know whether that expansion supports earnings, whether cost savings deliver lasting benefits, and whether weak demand worsens.
In some ways, Topps looks safer than Speedy, but its recovery still needs to deliver. A lower price would be nice but wouldn’t remove those uncertainties.
Watchlist, not Buy list
When it comes to penny stocks, both companies show promise. But based on their most recent numbers, I wouldn’t dive into either at today’s price.
Some improvements could make either attractive, even if the price held steady. With Speedy, the key’s whether expectations become realistic. With Topps, it’s whether operational progress reaches the bottom line.
The useful comparison isn’t today’s price against yesterday’s peak. It’s the change in valuation against the change in business prospects. That’s how a sell-off becomes a research opportunity rather than an invitation to gamble.
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Mark Hartley does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
