1 ‘nearly’ penny stock I’d buy and hold for the next decade

Investing in penny stocks is the pinnacle of risk. After all, most businesses are small for a good reason. And all too often, investor excitement can increase the value, only to collapse after expectations are not met.

But every now and then, a diamond in the rough can emerge. And one company that caught my eye this month is Phoenix Mobile (LSE: FNX).

A new mobile payment solution

As the war on cash continues, new digital payment methods are emerging across the country. And mobile payments are quickly gaining steam – a tailwind that Fonix Mobile is now capitalizing on.

Penny shares offer a unique mobile payment solution for transactions as small as £40. Every time someone uses the payment system, the money is not taken directly from the bank account, but added to the next cell phone bill. It’s effectively like a mini credit card without the massive interest fees on a few days’ late payments.

The Fonix solution has proven to be very popular. Having partnered with almost all major telecommunications companies, such as Vodafone, 3, EE, Sky, and O2, the company currently has 123 major merchants supporting payment methods. Some of our clients include the BBC, BT Sports, ITVand English Heritage.

With its various applications, the company has attracted more than 18 million users – or 27% of the UK population. Furthermore, revenue and operating income have grown annually by an average of 25% and 35% over the past five years.

Penny stocks are risky

As impressive as the group’s achievements have been to date, the risk profile is undeniably high. Fonix generates revenue by charging a small fee on each transaction. Therefore, the economic recession did not create an ideal operating environment.

But this is ultimately a short-term problem. My main concern is the state of the client list. Those 123 traders are no match for a very long list, although it’s getting longer and longer. But just 10 of those clients facilitate 85% of Fonix’s revenue stream.

Suppose only one of these businesses decided to cut ties? In that case, it could seriously compromise the company’s cash flow and send penny stocks strongly in the wrong direction.

However, seeing that this business has not lost a single client in the past seven years is encouraging. But this dependence does not give the best effect when renewing the merchant contract.

Bottom line

Fonix’s innovative payment methods are not easy to imitate and provide a prominent competitive moat against potential disruptive startups. And the huge popularity of the platform among consumers will surely attract more merchants in the future. At least, I think so.

The risks associated with these penny stocks are high. But that is to be expected when entering this area of ​​the stock market. And provided Fonix can continue to create a long-term strategy, the next decade could be a good period of growth for this company.

That is why I am tempted to open a small position in my personal portfolio if I have more capital.