1 penny stock under 38p that I’d buy today

Penny stocks can provide excellent returns, but they are a high-risk investment. Due to low liquidity, high volatility, and limited public information availability about micro-cap companies, this is not for everyone.

Indeed, my portfolio is mainly concentrated in more stable stocks, selected from well-known indexes like FTSE 100 and S&P 500. However, I would like to add some penny stocks to my portfolio this year.

One that looks attractive to me SRT Marine Systems (LSE: SRT). The company develops maritime surveillance and security systems used by coast guards, fisheries authorities, and ship owners.

Buying opportunity

SRT Marine Systems is AIM-list. The company is a global leader in the provision of maritime domain awareness products. It produces a variety of automatic identification system (AIS) devices, designed to track and monitor marine vessels.

Although SRT Marine Systems’ stock price is up 10% over the past year, it is down nearly 19% in 2023. This suggests the current price could be an attractive entry point for me.

Of course, the business has experienced significant disruption during the pandemic. In the 24 months to 31 March 2022, the company made a cumulative post-tax loss of £11m. But I am more optimistic about the future of the company.

Stocks that can run higher

SRT Marine Systems is profitable again. It made a post-tax profit of £2.1m in the first half of the current financial year. In H1, the company also saw a 300% increase in year-on-year revenue to £18.8m. In addition, the gross profit margin was higher at 38%.

What’s more, the broker’s forecast shows that profit and profit growth will increase significantly during the year. Prospects are particularly rosy for the high-margin systems division, which focuses on intelligence for the coast guard and fisheries.

Admittedly, comparing periods when trading activity was depressed due to Covid-19 may seem like a good thing. However, forward guidance shows promise. The company’s validated pipeline of new system opportunities is now over £600m.

In addition, the company continues to innovate. They are currently developing a new NEXUS radio product that will improve user comfort for maritime voice and data communications. This should help expand the company’s reach into the commercial and leisure marine electronics markets.

Time to board?

The company expects growth over the next five years to come from Asia and the Middle East. In the longer term, the business also aims to acquire new opportunities in Africa and South America. I like this penny stock exposure to emerging markets.

Add global challenges such as smuggling and piracy at sea points to the prospect of strong demand for the company’s products.

That said, the ongoing shortage of components for the company’s transceiver arm remains an issue that could limit share price growth. In addition, I am also concerned about companies that depend on private bond financing. The balance sheet is not as strong as it could be.

However, there is significant scope to win further contracts. New deals can be transformational for a company’s profits and cash flow. I don’t want to miss the boat on this Penny Stock, so if I have cash available, I will invest in the company today.