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One penny stock I've been keeping an eye on is HSS Rental (LSE: HSS). The business has struggled recently, but I can't help but wonder if the future could be better.
Let's take a closer look.
What happened
HSS is a leading rental and leasing company operating in the construction equipment sector. It operates from physical warehouses throughout the country. It is open to commercial and DIY customers, with the latter being where it makes most of its money.
So what has been happening with HSS stock? As I write, they are selling for just 7p. Over a 12 month period they are down 41% from 12p this time last year.
Going back even further, they are down 70% in a five year period from 24p to current levels.
One of the main reasons for the recent decline has been economic volatility. Inflationary pressures, as well as rising interest rates, have hurt the property market and the home construction market, as well as causing a cost of living crisis. This disastrous cocktail has led to mixed performance as well as weaker investor sentiment.
Speaking of performance, the company's last update released last September, a semi-annual report for the six months ended July 21, wasn't all bad. HSS reported that revenue and operating profit increased compared to the same period last year. However, margins and EBITDA declined. The good news was that there was an interim dividend. In fact, it increased compared to the last interim dividend.
What could happen?
The implications of a better economic outlook are obvious, in my opinion, but they are not a bed of roses. If volatility subsides and the homebuilding market can gain momentum once again, HSS could be set to benefit. A big part of this for the company is the fact that it has invested heavily in technology, its sales network, and boosted its partner program. Some of the results of this investment were clear in its latest update.
Furthermore, the company also has a good balance sheet at the moment. This could help you avoid continued pressure at this time.
If inflation falls to expected levels in the coming months and interest rates decline, HSS could be in a better position for the future.
Would you buy shares?
There is definitely recovery potential for HSS stock. Its profile, position and strength of its balance sheet are positive aspects. Furthermore, the property imbalance in the UK offers it opportunities for growth in the coming years. Additionally, a dividend yield above 6% (albeit inflated due to the falling share price) is another plus point in my investment case.
However, I don't think I'll be buying HSS stock for my holdings right now. Being so at the mercy of economic headwinds discourages me. There are better stocks I could buy with my hard-earned money.
I'll keep HSS stock on my radar for now and may revise my position once the next set of results are released.