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Investing in penny stocks can be a risky business. Newer and financially weaker companies can be vulnerable during economic downturns. However, small stocks like these also often deliver spectacular capital appreciation and beat the market over the long term.
I don’t have unlimited cash reserves to spend. But these are the penny stocks I’m looking to buy for my portfolio today.
Screen idol
Huge uncertainties face the global cinema industry in 2023. The impact of the cost-of-living crisis on ticket sales may dampen the boost provided by a stronger film slate compared to next year.
But I’m still ready to buy Everyman Media Group (LSE:EMAN) shares today. In fact, after the recent trade news, my enthusiasm for the cinema operator has grown stronger.
This week AIM indicates that profits rocket 62.5% per year in 2022. This means that the group’s EBITDA will rise by almost 75% during this period and more than the market expects.
Chief executive Alex Scrimgeour said that “UK appetite for film and the Everyman brand remains reassuringly strong“, adding “oYour proposal is in line with long-term consumer trends that focus on affordable, high-quality entertainment“.
City analysts expect a steady bottom line recovery at the leisure giant. They expect losses to continue to narrow in 2022, with a loss per share of 3p anticipated.
They think Everyman will break back into the black with earnings per share of 1.1p this year. An increase of almost 240% is predicted for 2024, also to 3.7p.
High cost
My only concern with buying the stock is that the price is too high. Changes in the price of shares of Everyman’s Inc. for the week it was 18%. At 91.3p per share, the penny stock now trades on a forward price-to-earnings (P/E) ratio of 83 times.
If the trading news suddenly turns bad, this expensive company could collapse.
As I said, this is a UK stock I would buy for the long term. This means that the impact of volatility on my return will likely be ironed out. But if I have to sell the shares for some reason I can end up eating a big loss.
The rebound continues
However, on balance, I believe that the benefits of Everyman shares outweigh this risk.
Cinema operators still face extreme competition from streaming services like Netflix and AmazonPrime Service. But analysts still believe the cinema industry will continue its strong post-pandemic comeback.
As the chart below shows, the boffins at PwC think puppet profits will hit record highs repeatedly over the next four years.
Each of them may be in a good position to take out the streamer as well. The on-site bar and restaurant means it offers customers a better social experience, giving movie lovers an excuse to leave the sofa.
With the business also continuing its expansion strategy, I expect earnings to grow significantly in the coming years.
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