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One penny stock I've been drawn to recently is Agronomy (LSE: ANIC).
I think the company has some potential to capitalize on changing the ways of one of my favorite pastimes: cooking and eating!
Let's take a look at the investment case and explain how this small cap could become something potentially lucrative.
Invest in food production alternatives
Agronomics is established as an investment company and specializes in the food production industry. It seeks to help smaller companies that focus on producing environmentally friendly alternatives to some of the world's favorite foods.
Since small-cap stocks are prone to higher volatility, it is not surprising to see the share price drop 46% in a 12-month period. This time last year the shares were trading at 13p, compared to current levels of 7p.
Interesting potential and notable risks
Agronomy investments focus on companies specifically in the nascent cellular agriculture industry. To simplify this, these are companies seeking to create meat and poultry from animal cells, rather than slaughtering them.
In my opinion, there is interesting growth potential. First, the meat and poultry market is worth more than a trillion dollars. Next, the increase in the world's population and the decrease in animal populations mean that we must start thinking about how we will feed ourselves for generations to come.
Additionally, the United States Department of Agriculture (USDA) recently granted permission to two companies to sell lab-grown poultry. This could be the beginning of the real takeoff of this type of food production and consumption.
In addition to these developments, Agronomics has some knowledgeable people on board its journey. A great example of this is Richard Reed, a non-executive director, who founded Innocent Drinks. The business was eventually acquired by the drinks giant. Coca Cola for 320 million pounds. I am excited about startups with people who have relevant experience and knowledge.
From a bearish perspective, one of the biggest problems facing agronomy and the companies it invests in are the enormous manufacturing costs. In the early stages, like now, this could hurt its bottom line. I imagine this could change in the future, as technology develops and practices become the norm. High manufacturing costs are not uncommon for a new product in its infancy.
The other big question for me is whether cell-based alternatives will prove as popular as the traditional product. Can the flavor be replicated so that these products become widespread? Time will tell how popular these alternatives could be.
my verdict
I think there is a potentially huge growth market that Agronomics could make a lot of cash from. This could send the stock soaring. The growing sentiment against animal cruelty and the shift away from the consumption of products related to it could help agronomy.
Despite the risks that could affect performance and profitability (at least initially), there is still enough meat on the bones for me. I would be willing to buy some shares of my holdings next time I can. At just 7p per share, I don't see too much risk for me personally.
