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Penny stocks are often high growth, high risk investments. They are not for the faint of heart, as they can experience higher share price volatility than more established stocks.
That said, I’m looking to add some small companies to the portfolio, even with modest stocks. In particular, I would like to take a position in a company with a market capitalization below £100m and a share price below 100p.
One that fits the bill is AIM-registered lifestyle and concierge business Ten Lifestyle Group (LSE: TENG), which has a market cap of just shy of £76m and a share price of just under 92p as I write. That’s how I invested in these penny stocks today.
A unique growth engine
Ten Lifestyle Group uses technology to provide services to wealthy customers. Its offerings span the lifestyle, travel, dining, entertainment, and retail sectors. The business model has a solid track record, with the company having a 25-year trading history.
The group has strategic partnerships with major banks including HSBC, Morgan Stanleyand Royal Bank of Canada. It generates revenue from service fees that are in multi-year contracts with the company’s clients.
Speaking of revenue, the latest numbers are encouraging. In 2022, the company made a record net profit of £46.8m – a 35% increase on 2021 figures, and well ahead of the company’s pre-Covid levels. In addition, adjusted EBITDA also increased by 11% to £4.9m.
Ten Lifestyle Group continues to take steps to create a competitive edge over its competitors. Investment in technology, content and communications increased by 18% to £13.6m. The company’s digital platform currently supports 18 languages and 39 currencies. Available to members in over 100 countries.
Perhaps the most promising development is the evidence that the company is successfully adapting to global travel and lifestyle demands as the world emerges from the pandemic. Active members (defined as members who have used the company’s services at least once in the past 12 months) are now at a record high, after increasing by 36% in the last financial year.
Challenge
Despite some positive numbers, investing in these penny stocks is not risk-free. Although losses have reduced, the company has failed to turn a profit in the last four financial years. While the trajectory is promising, I’d like to see the company turn a profit sooner rather than later.
In addition, Ten Lifestyle Group has faced difficulties arising from the war in Ukraine. The company was forced to close its Moscow office in March 2022, resulting in business losses and one-off disposal costs of £519k. Geopolitical tensions and the possibility of heightened sanctions on other countries remain a concern.
Finally, since the group depends on the income of the company’s clients, it is indirectly reflected in the performance of its main customers. In light of the current crisis engulfing many banking stocks, client spending on lifestyle, travel, and entertainment services may come under greater scrutiny when the time comes to renew contracts.
Should I buy this stock
Despite the risk, these penny stocks look like an attractive investment to me.
It is a market leader in a sector with significant growth potential, and the company’s digital strengths make its offering scalable.
If I had the money, I would invest in Ten Lifestyle Group shares today.
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