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Penny stocks can have a place in a well-diversified portfolio. They are higher risk, but the returns can be explosive.
Here, I'm going to highlight two of the best penny stocks in the London Stock Exchange. In my opinion, these stocks have a lot of potential.
In a strong position
First is hLIVE (LSE: HVO).
It is a small healthcare company that offers services for clinical trials and laboratory testing. Playing a vital role in the pharmaceutical industry, it serves several of the world's largest global biopharmaceutical companies.
A recent trading update from hVIVO was very positive.
To start, the company said that it is currently in its “strongest position of all time”with 90% of 2024 revenue guidance already contracted and record revenue visibility to 2025. By 2024, it expects to reach revenue of £62m (+11% year-on-year).
Secondly, it reported that a new state-of-the-art facility is planned to open in Canary Wharf, London, in the first half of 2024. This will allow the company to meet the growing demand for human challenge testing and will allow it to expand further. By 2028, it hopes to generate revenue of £100m a year.
I am excited about 2024 as we look forward to moving to a larger facility and further diversifying our services..
Dr. Yamin 'Mo' Khan, CEO of hVIVO
Currently, hVIVO stock trades with a forward-looking price-to-earnings (P/E) ratio of around 23. This above-average valuation adds some risk.
However, given the strong growth the company is generating right now, I think the overall risk-reward bias is attractive.
From a long-term perspective, I think the stock is likely to go up.
Releasing new opportunities
The other penny stock I want to highlight is net call (LSE: NET).
It is a technology company that specializes in customer engagement software and process automation powered by artificial intelligence. Their clients include Legal and generalNationwide and the NHS.
This company has a great growth trajectory. Over the last five years, its revenue has increased from £21.9 million to £36 million (+64%) as organizations have adopted its automation solutions. And looking ahead, analysts expect revenue growth to continue with a forecast figure of £39.1m for the year ending June 30, 2024 and £43.4m estimated for the following year.
It's worth noting that management was quite optimistic in a recent trading update. “We remain well positioned as we enter the second half, and our innovative product roadmap continues to open new opportunities in a structurally growing market.”said chief executive James Ormondroyd.
Now, this stock also has a higher valuation. Currently, the forward P/E ratio here is about 31.
I don't think it's unreasonable given that the tech company is growing quickly and has a lot of recurring revenue.
But it does add some risk to the investment case. If growth slows, the stock could become volatile.
