I would invest £10,000 in this penny stock
When it comes to investing in penny stocks, I generally use a diversified approach. Indeed, investing in these small businesses can be quite risky. Therefore, I don’t think it makes sense to allocate a large percentage of my net worth to just one or two stocks. I prefer to spread my money.
However, there is one action I am so passionate about that I would be happy to invest £10,000 in the business at the moment.
A leading penny stock
Lamprell (LSE: LAM) is a leading service provider to the international energy industry. It is a volatile and cyclical activity. Spending in the oil and gas industry tends to rise and fall with energy prices, which means it can be difficult to predict the future for companies like Lamprell.
It’s not a great quality for any company, but Lamprell is changing. He’s using his experience to grow in the renewable energy sector, which is why I’m so excited about his potential.
The renewable and green energy sector is booming. With the influx of cash into the industry, spending is on track to outpace investment in traditional energy industries in the near future.
Lamprell’s renewable energy business is booming. At the end of June 2021, the company’s offering pipeline stood at $6.9 billion. That amount had risen to $7.9 billion by the end of October.
Renewable energy infrastructure contracts accounted for just over 50% of the order book for the first time. Management expects the share of renewables to continue to grow, with the total potential backlog reaching $6 billion this year. The group continued to progress with new contracts.
That said, the penny stock has significant challenges to overcome before it can capitalize on this growth. The most important of these is funding. Towards the end of last year, the company raised £30 million from investors for working capital.
The company depends on investors and other creditors to fund its working capital obligations as it expands its footprint and capitalizes on growing demand for renewable energy infrastructure assets. If funding dries up, the company could run into significant problems.
Yet what is exciting about this shift is the fact that renewables are much more stable than oil and gas. The industry is not sensitive to energy price volatility, which can have a significant impact on companies’ capital expenditure plans.
There has always been a certain level of unpredictability in Lamprell’s business model because of this. But with its growing exposure to renewables, I think the business is going to become a lot more predictable.
This is the main reason why I am ready to invest £10,000 in the business today. I think the market is underestimating its growth potential over the next few years and its exposure to the renewable energy sector.
Rupert Hargreaves has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.