Down 50%, this penny stock could reward patient investors

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Chapel Down Group (LSE:CDGP) is a penny stock listed on the London Stock Exchange. As with any penny stock, the investment risks are heightened. These are small companies that offer high-growth opportunities, but with plenty of risks attached. They can be volatile, but trading volume is typically low.

Personally, I think this company has built such a strong brand that it shouldn’t fail. Served at royal weddings and as the sponsor of the Boat Race, it has cemented itself as a household name among its socio-economic target market. There are no guarantees, of course, but let’s take a closer look.

A growing business

Benefitting from climate change, which allows Chardonnay and Pinot Noir grapes to thrive in English vineyards, Chapel Down has emerged as the largest UK producer. It holds approximately 10% of the UK’s total planted vineyard acreage with 1,024 acres.

Net sales revenues totalled £16.4m in 2024. That’s down 5% on the year before, but fourth-quarter sales were up 7% year on year. In fact, excluding the now-exited spirits business,  fourth-quarter revenues would have been 10% higher than last year. According to management, this positive momentum is said to have carried into the new year.

Looking forward, the forecasts provided by analysts suggest that revenue could reach £19m in 2025 and £22m in 2026. This would reflect strong double-digit earnings growth. This is a core sign of the strength of the brand and health of the business.

The weather plays a role

Unsurprisingly, weather still plays a massive role in wine production. The 2024 harvest at Chapel Down was significantly smaller than the previous year, with approximately 1,875 tonnes produced, compared to 3,811 tonnes in the “exceptional” 2023 harvest. Thankfully, what we’ve had already in 2025 could be fairly conducive to a good harvest this year.

That was one thing that weighed on the share price. Another is that plans to put the company up for sale have been abandoned, placing downward pressure on the stock. This is still very much a business in the growth phase. And some investors had been holding on until a larger business bought the company, hopefully for a handsome premium. And with a market cap of £66m, it’s certainly not a big business.

However, the current owners are taking the firm forward themselves. The company’s expansion plans, including the £32m Canterbury winery expansion, aim to increase production capacity to 9m bottles annually by 2032, up from 1.5m in 2021. This is a significant investment, which will see net debt grow from around £9m to around £14.6m by 2026.

But this could deliver the economies of scale that Chapel Down needs to be successful and grow into its valuation.

The bottom line

It’s a stock I’ve been interested in. That’s partially because shareholders with 2,000+ shares receive a 33% discount on full-priced wines purchased directly from Chapel Down. Moreover, noting around £33m in net assets, there’s evidence it could start to look undervalued in the near future if its sales growth is sustained — which I think it will be.

One concern, however, is the trading volume. It’s not really on many investors’ radar and it may take a while for good news to be recognised within the stock price. Personally, I’m just keeping a close eye on this one for now.

The post Down 50%, this penny stock could reward patient investors appeared first on The Motley Fool UK.

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James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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