Many investors, especially beginners, think a penny stock is the thing to go for. After all, if you find one valued in pennies when some share prices are up in the tens of pounds, you can make a mint, right?
It can happen, and plenty of penny stocks over the years have rewarded shareholders with multi-bagger returns. But many have been wipeouts.
The biggest possible loss is still 100% — the same as with any share, whatever the price. Narrowing the search to companies with long-term track records and positive broker forecasts can help. And I think I might have found a cracker…
I’m talking about UK brick maker Michelmersh Brick Holdings (LSE: MBH), with a share price around 77p at the time of writing and a market-cap of £70m.
Who needs housing?
Michelmersh shares are down 32% in the past 12 months, and 45% over five years. Why? It’s about bricks, it’s about building, it’s about houses, and it’s about the property market.
They’ve all been through a torrid time. A company with a tiny market-cap often doesn’t have the resources to keep it going through the worst days — and that’s a fear. So one of my key criteria for a potential penny stock pick is: low debt when times are good, as debt can kill when things turn bad.
Fortunately, Michelmersh doesn’t operate with a huge amount of debt. Analysts expect £6m-£7m average over the next three years. And that’s only around 10% of 2025 full-year revenue.
Earnings growth
There’s a 75% rise in earnings per share forecast for 2026. And between 2025 and 2028, analysts expect a 113% jump!
The dividend’s expected to grow by a modest 7% over the same three years, which isn’t huge. But it still suggests an attractive 5.9% yield.
So we have a penny stock coming through a tough patch, with a brilliant return to earnings growth on the cards. And there’s a seriously nice potential dividend to be had too. What’s not to like?
Tough trading
Well, full-year results in March showed an 18% fall in adjusted profit before tax. Why? The company said it’s due to:
…timing of capital improvement activities, interruption caused to production through the relocation and closure of Watlington site, and market challenges in the UK and in Europe.
FY 2025 results, 24 March
At the time, Chair Tony Morris added: “We enter the new financial year with continued uncertainty around momentum in the wider UK construction industry.”
We just don’t know how long the uncertainty will continue — it’s gone on far longer than expected, I’d say. And I suspect that could keep Michelmersh shares depressed for a while longer.
Multi-bagger, or bust?
I doubt we’ll see millionaire-tomorrow gains from Michelmersh. But at the same time, I rate its chances of going bust as low. It isn’t a high-risk/no-profit, ‘jam tomorrow’ hope. But I see it as a long-term growth-plus-dividend candidate for my next ISA buy — and investors might do well to consider joining me.
After all, humans will need places to live for generations to come, and they tend to be made of bricks.
Should you invest £5,000 in Michelmersh Brick Plc right now?
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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Michelmersh Brick Plc made the list?
Alan Oscroft does not hold any positions in the companies mentioned.
