Over the last 7 days, the Australian market has remained flat, although it is up 17% over the past year, with earnings expected to grow by 13% per annum in the coming years. Investing in penny stocks—an area that remains relevant despite being a somewhat outdated term—can still offer unique growth opportunities, especially when these stocks are supported by strong financial health. This article will explore several such penny stocks that could combine balance sheet strength with long-term potential for investors seeking under-the-radar opportunities.
Overview: NRW Holdings Limited, with a market cap of A$1.81 billion, offers diversified contract services to the resources and infrastructure sectors in Australia through its subsidiaries.
Operations: The company's revenue is derived from its Mining segment at A$1.52 billion, MET at A$791.81 million, and Civil at A$655.46 million.
Market Cap: A$1.81B
NRW Holdings Limited, with a market cap of A$1.81 billion, demonstrates solid financial health and growth potential. The company has reduced its debt to equity ratio from 19.2% to 7.6% over five years and maintains well-covered interest payments with an EBIT coverage of 7.5 times. Earnings have grown by 22.7% in the past year, surpassing industry averages, while maintaining high-quality earnings without shareholder dilution. Despite trading below estimated fair value and having more cash than total debt, its dividend coverage remains weak due to insufficient free cash flows. Recent equity offerings may impact future stock performance considerations.
Overview: Perenti Limited is a global mining services company with a market capitalization of A$1.11 billion.
Operations: The company's revenue is primarily derived from Contract Mining Services (A$2.54 billion), Drilling Services (A$598.10 million), and Mining Services and Idoba (A$239.06 million).
Market Cap: A$1.11B
Perenti Limited, with a market cap of A$1.11 billion, shows a mixed financial picture typical of penny stocks. The company has experienced significant earnings growth over the past five years, though recent earnings have declined slightly, underperforming industry averages. Its debt management is prudent with a satisfactory net debt to equity ratio and strong coverage by operating cash flow. Despite stable short-term asset coverage over liabilities and high-quality past earnings, its return on equity remains low at 6%. Recent share buyback initiatives signal confidence in undervaluation but may not stabilize its historically unstable dividend track record.
Overview: Service Stream Limited operates in Australia, focusing on the design, construction, operation, and maintenance of infrastructure networks in the telecommunications, utilities, and transport sectors with a market cap of A$995.84 million.
Operations: The company's revenue is derived from three main segments: Telecommunications (A$1.20 billion), Utilities (A$969.59 million), and Transport (A$119.16 million).
Market Cap: A$995.84M
Service Stream Limited, with a market cap of A$995.84 million, demonstrates characteristics often seen in penny stocks. The company has achieved substantial earnings growth recently, with a 623.8% increase over the past year, far surpassing its five-year average decline of 34.5%. Its debt is well-managed and covered by operating cash flow at 178.3%, while short-term assets exceed both short- and long-term liabilities, indicating financial stability. Despite low return on equity at 6.7% and an inexperienced board with an average tenure of 2.6 years, Service Stream's recent dividend increase reflects improved profitability and shareholder returns.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include ASX:NWH ASX:PRN and ASX:SSM.
