Penny stocks: 2 AIM shares to turn my pennies into pounds

At Alternative Investment Market (AIM) is a sub-market of the main London stock exchange. The index is host to many small constituents with high growth prospects. So here are two penny stocks I’ve got on my watch list that I think have the potential to grow your money exponentially.

1. Chocolate Hotel

After the share price fell by 75% last year, Chocolate Hotel (LSE: HOTC) Shares may seem like an odd pick, especially with a recession on the cards. However, I think there is a key catalyst that has been mitigated.

The first is consumer behavior during a recession. It is interesting to note that chocolate sales have a different relationship with consumer confidence. This can be attributed to the lipstick effect – the behavior of indulging in small luxuries when there is economic uncertainty. This was evident in the latest half-year update which saw UK sales rise by 7%.

Still, the company can not shy away from the overall revenue down 9% due to weak international offerings, because it always underperformed overseas. Even so, penny stocks are still trying again in Japan. Only this time, they’re doing it with less capital and more experience thanks to a partnership with local conglomerate Eat Creator.

Even more profitable, the stock is now trading at a decent price with a large debt-free balance sheet. The current price isn’t cheap by any means, but if chocolate achieves its target of 20% EBITDA margin by FY25, starting a position now could offer huge upside potential. After all, broker Leberium rates the stock a ‘buy’ with a price target of £3.00.

In fact, if I bought shares when I was first recommended at the end of November, I would have gone up by 35%. So, I don’t want to miss this time, and I’m going to start a small position.

2. Technology together

Like many technology-related companies in 2022, stocks in the Technology together (LSE:CNC) is on the decline. Fortunately, the decline is not as drastic as many, due to the client base (aerospace, defense, and telecommunications), which is more insulated from the economic downturn.

In its latest trading update, the company said it expected revenue for 2022 to beat consensus (£16m) by 10%, with profit before tax coming in as expected (£0.1m). And with the semiconductor industry apparently at the bottom, can rebound on the cards, with standing together to benefit.

The company ended last year with the highest ever order backlog as order intake grew by more than 25%. Thus, the board expects to see significant revenue growth in 2023 as it plans to increase its production capacity.

However, Concurrent’s investments in components, R&D, and improving systems to mitigate supply shortages in 2022 saw free cash flow flow. As a result, the 3.4% dividend yield will not be paid in the near future as the AIM stalwart looks to capture capital. But with a flawless balance sheet, it’s definitely got the right foundation to drive free cash flow.

Penny stocks aren’t exactly the cheapest based on current multiples, which I have to be careful about. That being said, the long-term growth still entices me to start a small position because of the upside potential.