Up 10% in a week: one good-looking penny share I’d like to buy
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As a Silly investor, I need to say that I like to hunt for a discount. Penny shares have at all times piqued my curiosity given their small measurement and usually increased stage of worth volatility.
Penny shares confer with corporations with a market capitalisation beneath £100m and a share worth of lower than £1.
Price a reasonably penny
One which caught my eye this week was Revolution Magnificence Group (LSE: REVB). It’s a international, multi-category, mass magnificence and private care enterprise. I like that the corporate is diversifying with its wholesale retailing relationships, in addition to working with a transparent digital gross sales technique.
Revolution Magnificence shares have soared 10% within the final week alone. Shares within the AIM-listed magnificence retailer are buying and selling at 29.5p with a £93m market capitalisation. In its most up-to-date interim outcomes, the corporate reported adjusted earnings earlier than curiosity, tax, depreciation and amortisation (EBITDA) of £6.4m from £90.4m.
Latest replace
The corporate lately held its Capital Markets Occasion on 8 February with a quick replace to buyers. One factor that stood out was its diversified international earnings throughout the USA (27% of gross sales), UK (34%) and Remainder of the World (39%).
Revolution Magnificence’s “quick to market” content material mannequin can be a tick in my books. The corporate has centered on delivering partaking content material rapidly to take care of and seize extra market share.
Whereas there’s lots to love about Revolution Magnificence, there are at all times dangers to investing. I believe penny shares, particularly, warrant heightened due diligence given their small measurement and infrequently important worth swings.
One key danger I can see is that Revolution Magnificence may be very client dealing with. Whereas the corporate’s latest Capital Markets presentation exhibits a US$460bn (and rising) international magnificence market, I’m cautious of direct-to-consumer corporations. Folks do prefer to spend on cosmetics, which comprise 78% of group gross sales, however that may be examined when instances get robust.
Companies are typically extra resilient and extra dependable from a buyer perspective. Given the present financial local weather, together with heightened cost-of-living pressures, I might see customers decreasing their magnificence spend in favour of the naked requirements.
E-commerce vs brick-and-mortar
The opposite factor that jumps out to me is the excessive proportion of earnings from bodily retail shops. Revolution Magnificence studies 80% of its earnings are from bodily retail with 20% by way of digital.
With the rise of e-commerce and the likes of Amazon, brick-and-mortar retail has been beneath strain lately. One huge constructive, nonetheless, is that actual property isn’t a serious a part of the enterprise with property, plant and tools making up £7.9m or 6.0% of whole property in FY23.
The robust positive aspects within the final week or so point out that different buyers are shopping for up Revolution Magnificence shares. I just like the look of the enterprise however am cautious of the consumer-facing aspect if we see additional recessionary situations.
All in all, I’m prepared to bide my time and take into account shopping for once I see the corporate’s subsequent outcomes launch to allay my issues.