Penny stock Calnex Solutions (LSE: CLX) has had a rough few years. That’s because the company provides testing solutions to the global telecoms market and conditions in this industry have been weak.
Recently though, the stock’s made a huge comeback, rising around 60% since late March. At today’s price of 71p though, it’s still well below its highs, so could it be worth a look?
A focus on new growth markets
Calnex is led by founder Tommy Cook. And recently, he’s done what all good founders do when business conditions get tough – pivot and focus on new opportunities.
Recently, the company’s expanded into a number of new growth markets, notably data centres/artificial intelligence (AI) and defence. And this has had a positive impact on performance.
Indeed, in a trading update in April, the company advised that it generated revenue growth of around 19% in the financial year ended 31 March. It added that gross margins had remained strong, leading to a jump in profitability.
Looking ahead, the company said that the progress made in the last financial year provides “a strong foundation” for continued profitable growth this financial year and next. It noted that this year it will be focusing on product launches and development of customer relationships to underpin future growth.
Diversification across the cloud computing & datacentres and government & defence markets continued to gain traction in FY26 and, against a backdrop of a stable telecoms market, supports confidence in continued growth in FY27 and FY28.
Calnex Solutions CEO Tommy Cook
AI products
Zooming in on some of its products, one worth highlighting is Calnex ‘Sentry’. This is a rack mount synchronisation monitor that enables cloud computing companies to monitor network performance and it has seen substantial sales to a hyperscaler in recent years.
Another is its ‘SNE’. This is a new product that enables hyperscalers to simulate networks and emulate the real-world conditions under which applications and platforms need to perform and right now it is attracting ‘keen interest’ in the market.
Is there an opportunity here?
Is this penny stock worth a look today? I think so. I hold it in my own portfolio and I have no intention of selling it any time soon given the growth potential associated with the data centre market.
Note that according to McKinsey, by 2030, global spending on data centers is set to hit $7trn.
I’ll point out this stock’s high up on the risk spectrum (so it’s not going to be suitable for everyone to consider). Risks include market weakness, loss of key customers, general stock market volatility, and valuation compression (the valuation looks quite high today given that profits have fallen in recent years).
Taking a five-year view though, I see a lot of potential, especially with Cook running the show. Given that he owns a ton of shares in the company (about 20% of the float), it’s in his interests to boost growth and get the share price higher.
Should you invest £5,000 in Calnex Solutions Plc right now?
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Edward Sheldon has positions in Calnex Solutions
