1 penny stock under 32p that I’d buy today

I am currently looking for penny stocks that can fill my return portfolio. Although small-cap stocks often have a higher volatility risk than more established companies, with enough cash on hand, I like to allocate a small percentage of my portfolio to higher growth opportunities.

one AIM-listed shows that have attracted attention recently Accrol Group Holdings (LSE: ACRL). The company manufactures toilet roll, kitchen towels, and facial tissue products for major wholesale retailers, such as Tesco and Aldi. As I write, Accrol’s share price is below 32p.

Of course, this is not the most exciting sector to invest in. However, I think the potential profits offered make this penny stock a better investment prospect than it first appears. This is why.

Rapid growth

The Lancashire Company’s latest financial statement on earnings is 31/12/2019.

Accrol’s revenue rose 64% to £121.1m, which was a 19% increase in gross profit to £21.7m. In addition, the company is also making progress in claiming market share. In 2017, the company captured 5.6% of the UK network market. Today, that figure has risen to 21.5%.

In the medium term, the group has the ambition to build a sustainable paper mill that increases the prospect of efficiency and the company’s route to market.

What’s more, the business also signals the possibility of increasing value for shareholders in the form of dividends or share buybacks. The possibility of generating passive income from buying Accrol stock adds to the attractiveness of Penny stock investing in my view.

Risk

Despite the impressive headline figures, there is some cause for concern in Accrol’s latest results. First, gross margin of 18% represents a fall of 6.7% year-over-year. This suggests that the company has made slow progress in converting higher gross profit into net income.

Second, the group’s net debt level increased by 41% compared to the previous half year. At £30.5m today, the debt burden is a bit high for me. However, the company faces challenges from supply chain disruptions and attacks on UK ports. This risk remains, but there is a chance that trading conditions may begin to normalize as the year progresses.

Third, the inflationary environment continues to act as a headwind. Rising input costs create a difficult market environment. If high inflation persists, this will limit the company’s growth prospects. Additionally, if inflation falls sharply, the outlook for Accrol stock should improve.

Should I buy these penny stocks?

If I had the money, I would invest in Accrol stock today. Overall, I believe that the company has promising growth prospects and has succeeded in capturing significant market share in a short period of time.

The group expects gross profit to improve this year as the impact of the delay in price increases filters through to the company’s results. If it achieves this target, the case for investing in the company will become more attractive in my view.

When it comes time to rebalance my portfolio, Accrol stock will be at the top of my must-buy stock shopping list.