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Investing in penny stocks can be a risky business. The newest and most financially weak companies can be vulnerable during economic downturns. However, small-cap stocks like these also typically generate spectacular capital appreciation that outperforms the market over the long term.
I don’t have unlimited cash reserves to spend. But here’s a penny stock that I’m considering buying for my portfolio today.
screen idol
The global film industry faces great uncertainty in 2023. The impact of the cost-of-living crisis on ticket sales could well undo the momentum provided by a stronger film slate compared to next year.
But I’d still be prepared to buy Everyman Media Group (LSE:EMAN) shares at this time. In fact, following the recent business news, my enthusiasm for the theater operator has strengthened.
this week the POINT share said revenue soared 62.5% year-on-year in 2022. This, in turn, meant group EBITDA would rise nearly 75% over the period and above what the market expected.
Chief Executive Alex Scrimgeour commented that “UK appetite for film and the Everyman brand remains reassuringly strong”, adding that “orOur proposition is aligned with the prevailing long-term consumer trends focused on high-quality and affordable entertainment.”.
City analysts expect a sustained recovery in the bottom line at the leisure giant. They expect losses to have narrowed further in 2022, with anticipated losses per share of 3p.
They believe Everyman will be back on track with earnings per share of 1.1p this year. It is also projected to rise to a striking 240% by 2024, to 3.7 pence.
High price
My only concern with buying stocks is their sky-high valuation. Everyman’s stock price has skyrocketed 18% over the past week. At 91.3 pence per share, penny stocks are now trading with a high forward price-earnings (P/E) ratio of 83 times.
If business news suddenly becomes more uncomfortable, this expensive company could collapse.
As I say, this is a UK stock that I would buy to hold for the long term. This means that the impact of any volatility on my returns is likely to be eliminated. But if I were to sell my shares for any reason, I could end up taking a huge loss.
The bounce continues
Still, overall, I think the potential rewards of owning Everyman shares outweigh this risk.
Movie theater operators still face extreme competition from streaming services like Netflix Y AmazonPrime service. But analysts still believe the movie theater industry will continue its strong post-pandemic recovery.
As the chart below shows, the geeks at PwC believe that movie theater revenue will reach repeated all-time highs in the next four years.
Everyman could also be particularly well positioned to take on the streamers. Bars and restaurants within its premises mean it offers customers a better social experience, giving movie lovers more reasons to get off the couch.
With the business also resuming its expansion strategy, I expect earnings to grow strongly in the coming years.
