Picked well, penny stocks have the potential to dramatically improve my wealth in a short period of time. This is especially true if I hold them in a Stocks and Shares ISA. Doing so means I won’t need to pay tax on any profits I make. 

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Today, I’m returning to look at a company that’s been on my watchlist ever since it was listed in June 2021. Should I finally dip my toe in the water?

Penny stock disaster

Based on recent performance, it’s just as well I’ve held back from pulling the trigger on bathroom specialist Victorian Plumbing (LSE: VIC). From jumping to a 52-week high of almost 342p early on, the share price has since collapsed 75% to 85p. What on earth’s happened here?

I don’t think there’s one single factor to blame. As I remarked at the time, it’s clear that Victorian Plumbing’s IPO was opportunistic and designed to coincide with the boom in DIY seen since the beginning of the pandemic. This allowed original investors to make an absolute killing. And I can’t really blame them for wanting to achieve the best price possible for their stakes. 

The issue with being the largest IPO ever on the junior AIM market is that new investor expectations jumped ahead of reality. Since those heady days, Victorian Plumbing has experienced issues with its supply chain (like many other businesses). Revenue growth has also slowed as the rush to buy new bathroom suites replaced with spending on other things.

Buy the (big) dip?

On the one hand, I’m now able to buy stock in a cash-generative company for 17 times earnings, based on analyst forecasts. That’s not screamingly cheap but nor is it is eye-poppingly expensive. Interestingly, VIC also has a PEG (price/earnings-to-growth) ratio of just 0.5. Anything less than one suggests new buyers are getting a lot of bang for their bucks. 

I’m also attracted to Victorian’s online-only/capital-light business model. It’s already profitable (in contrast to a lot of highly-valued fluff out there) and there’s a decent amount of cash on the books.

Furthermore, the company has a sizeable share of the market and customer reviews are generally very positive. To round things off, CEO/founder Mark Radcliffe retains a huge 47% stake. If anyone wants the company to bounce back, it’s him. 

But let not get ahead of ourselves. An obvious risk with this penny stock is that things could get worse before they get better. A military conflict in Eastern Europe has the potential to hit growth stocks like this, even if it’s irrelevant to selling bathrooms. Margins look like being squeezed for the foreseeable future too.

Victorian Plumbing also has a small free float. Just 35% of the company’s stock is available to trade in the market. That could exacerbate an already bad situation. It only takes a small amount of selling to really move the needle. On a more optimistic note, the reverse is also true. 

My verdict

I do feel like the (prolonged) sell-off of this penny stock has been overdone. Nevertheless, I’m inclined to wait until after this month’s AGM (and a potential update on trading) before deciding whether now is the time to strike.

For now, this penny stock stays on my ISA watchlist.

The post 1 penny stock I’m considering for my Stocks and Shares ISA appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The skittish mood among UK investors in recent weeks has led to many growth stocks tumbling in value. This morning, I’m going to pick out two that were already on my share watchlist as potential buys at the right price. Has that time arrived?

Victorian Plumbing

I took an initial look at Victorian Plumbing (LSE: VIC) back in June. At the time, the UK’s leading online retailer of bathroom products and accessories had just enjoyed a successful IPO. The shares had jumped from 262p to as high as 341p. Today, the very same stock trades 44% below that peak. What’s going on?

Well, as I noted back then, the company was coming to market during a DIY and home improvement boom. Many of us had used the multiple UK lockdowns to get our properties in order and/or prepare for more home-working in the future.

Unfortunately, last week’s trading update for the year to 30 September suggested this purple patch might be coming to an end. Despite growing revenue by 29% over the financial year, news of “more subdued market conditions” as Covid restrictions were lifted didn’t impress investors. This is despite the company emphasising that margins “remained strong“ and EBITDA for FY21 would likely be “ahead of market expectations“.

Jitters over global supply chains may also have contributed. Having said this, VIC didn’t help itself here. Reflecting that it had been “proactive” on this issue but providing very little in the way of detail wasn’t really satisfactory.

Even so, the market’s treatment of Victorian Plumbing has been a little too brutal, in my view. I guess this is what happens when a highly-rated growth stock doesn’t execute to perfection.

As things stand, VIC stock trades on 21 times earnings. With global headwinds unlikely to disappear anytime soon, I’m inclined to think that the valuation may still have further to drop. As such, I’m keeping my powder dry. It definitely won’t lose its place on my watchlist though.

Luceco

If Victorian Plumbing’s valuation still appears a little too rich, lighting specialist Luceco (LSE: LUCE) is looking far more palatable. Right now, the near-£500m cap company’s stock changes hands for a little over 15 times earnings. 

Sadly, my bullish call on LUCE just over one month ago wasn’t shared by the market. Despite reporting very decent numbers and raising the interim dividend by 73%, investors have elected to abandon the stock en masse. All told, LUCE shares were down 41% before markets opened today since hitting an all-time high in early September. Then again, they’re still up 41% in the last 12 months. 

In my defence, I questioned whether the lack of buying activity on the day did suggest investors were concerned by the firm’s comments relating to significant cost inflation and supply chain setbacks. Even so, I underestimated just how great this concern was. Some director selling hasn’t helped matters.

Of course, short-term setbacks may be regarded as opportunities for long-term investors such as myself. This remains a quality business, in my opinion. Bar the odd blip, margins and returns on capital have been consistently great. The aforementioned cash returns should also be sufficient compensation while investors await a recovery. How long that recovery takes is debatable, of course. 

Far from switching off from this growth stock, I’d be comfortable starting to build a position today.

The post These growth shares have tumbled over 40%! Time to buy? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Can this incredible momentum continue or is this now a ticking time-bomb? Let’s start by looking at why investors have been queuing up to buy.

Why the Darktrace share price has rocketed

Part of the reason for the huge rise in the Darktrace share price is the growing realisation of just how useful its tech is.

The company is a leader in the use of self-learning AI to help defend businesses against ransomware and cloud attacks. This is patently valuable since it takes some pressure off human security teams. To drive the point home, Darktrace was recently named as one of the most influential companies in the world by TIME magazine.

As one might expect from all this, the company doesn’t seem to have any problem attracting clients. Back in July, Darktrace announced it had ended its last financial year with roughly 5,600 customers. This reflects 42% year-on-year growth over the 12 months to the end of June. 

This is clearly good news for DARK’s top line. It now expects annualised recurring revenue (ARR) of $340m once foreign exchange fluctuations are factored in. That’s year-on-year growth of 44%.

But can this form continue?

It’s certainly possible. After all, the company’s already increased expectations for the current financial year. It’s now looking for the aforementioned ARR to be somewhere between 32% and 34% for FY22. That’s up from the 26.5% to 29.5% suggested at the time of its IPO.

However, no investment is risk-free. Despite it operating in a sector that’s likely to experience huge growth over the next decade, Darktrace’s success isn’t guaranteed.

My biggest concern relates to the valuation. Following its superb rise over the last few months, the business now has a market capitalisation of £4bn — almost 24 times forecast sales. Now, having optimistic investors is all well and good.

However, being priced to perfection can be problematic if a setback were to occur now. And all businesses encounter setbacks eventually. So if the valuation remains frothy then, yes, I think we could see a big drop in the Darktrace share price eventually.

However, there’s a chance of this happening in spite of whatever the company does. Concerns over rising inflation and the forthcoming stimulus taper in the US could really impact sentiment across global markets. In such a scenario, those companies that aren’t yet making profits, such as Darktrace, could be hit the most. 

There’s also the possibility early holders may want to bank some profit. We’ve already seen this happen before in highly promising UK-listed tech companies such as robotic automation specialist Blue Prism.

Buy on dips

I’m not sure the Darktrace share price is a ticking time-bomb. Even so, I’d be surprised if it doesn’t let off some steam soon. Whether this occurs next month (full-year numbers are confirmed on 15 September) or later down the line is hard to say. However, I’d need to give serious consideration to adding the company to my own portfolio if/when the opportunity to load up arises.

Short-term movements aside, I think Darktrace remains a very enticing growth play. 

The post Is the Darktrace share price a ticking time-bomb? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Deliveroo shares: now delivering

Last month’s upgrade to growth forecasts certainly took me by surprise. With quarterly food orders having rocketed 88%, Deliveroo said its gross transaction value would increase by somewhere between 50% and 60% in 2021. That’s a stonking improvement on previous expectations of between 30% and 40%. 

Elsewhere, the company’s potential withdrawal from Spain makes sense, considering it only generates 2% of its gross sales here and significant investment would be required to improve this. In a highly competitive environment, Deliveroo needs to pick its battles. Based on these developments, the recovery feels justified.

Then again, many of my original concerns haven’t changed. The company doesn’t make a profit and won’t for some time, due to ongoing investment. The share ownership model is still questionable and the debate over the rights of gig workers won’t cease anytime soon.

Whether the above is sufficient to stop the recovery in Deliveroo shares is another thing, of course. A few firms have struggled following their IPO only to go on to deliver stunning gains, despite ongoing concerns (step forward Facebook).

If I were to buy a tech-related stock right now however, it wouldn’t be this one. I think there’s a better option hiding in plain sight in the FTSE 250.

Better tech buy

I doubt Bytes Technology (LSE: BYIT) will be on the lips of many private investors. The  UK-based company has only been listed since December 2020, following a demerger from South Africa-based Altron Group. However, this may be set to change. 

BYIT is a specialist in providing software, security and cloud services. Given that cybersecurity is and will remain hugely important going forward, I think the company could find itself in a sweet spot.

Business is already good. Back in May, the company announced that revenue had grown by 5% to £393.6m in the year to the end of February. Robust spending by customers over the pandemic also allowed BYIT to log record adjusted operating profit of £37.5m. More recently, the business reported strong demand from clients in the public sector.

What’s not to like?

One drawback is the valuation. At almost 36 times forecast earnings, shares are undeniably pricey to acquire. This arguably makes them more susceptible to a big fall if we get some less-than-encouraging news on, say, the global economic recovery (although there’s potential for Deliveroo shares to fall harder, given the aforementioned lack of profitability). Margins in this line of work are also pretty thin and rising costs should be expected following the lifting of restrictions. 

Notwithstanding this, the company has net cash on its balance sheet. Returns on capital are also seriously good. BYIT also benefits from a huge amount of customer loyalty, which may give it the edge over peers.

One to watch

Recent news makes me think I may have been too dismissive of Deliveroo shares. Nevertheless, I’d still be far more comfortable buying stock in a company already making decent profits.

I wouldn’t go ‘all-in’ on BYIT today. However, a small starter position might be in order.  

The post Would I buy Deliveroo shares now? appeared first on The Twelfth Magpie.

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• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Revenue rockets

Today’s results for the full-year to the end of April were certainly nothing for holders to complain about. 

Having despatched over 50 million orders, Moonpig’s revenue rose 113% year-on-year to a little over £368m. According to the company, this was due to growth in new customers and people making more frequent purchases as a result of multiple Covid-19 lockdowns. I certainly count myself within the latter category. 

The good news continues. Adjusted earnings came in at just over £92m — at the top end of guidance issued by the company in February. Pre-tax profit came in only 3% higher than last year but this was due to costs associated with the IPO. 

All this sounds pretty positive. So, why is the Moonpig share price crashing back to earth today? It appears to be down to the company’s outlook. 

To the moon… and back

Despite the new financial year starting “moderately ahead of expectations” thanks to the delay in Boris Johnson’s road map out of lockdown, Moonpig said that it had noticed the number of orders on its site starting to normalise, albeit from “elevated levels“. Importantly, it thinks this drop will continue.

Ultimately, the company expects the frequency of orders to steady around 5% higher than pre-pandemic levels. As a result of this, Moonpig thinks this financial year’s revenue will fall to somewhere between £250m and £260m. That’s clearly a big step down from last year’s headline number. 

Another thing that may be spooking investors is news that management will “continue to prioritise additional investments in marketing and market share capture” rather than focusing on short-term profit. 

Where’s the moat?

There are things I like about Moonpig. In addition to boasting the sort of margins you’d expect from a pureplay online operator, the company’s “unique gifting dataset” should indeed allow it to personalise experiences for customers as management claims.

Speaking as a customer, however, I’m not sure that I would ever buy anything other than cards from the company. It may be adding hugely popular brands like Lego to its range, but a simple online search shows that I can get the same products far cheaper elsewhere. In other words, Moonpig is a convenience play. If I’m organised, I won’t need it. As a potential investor, that would trouble me.

I’m also struggling to find an economic moat here. FTSE 250 peer WH Smith has rival Funky Pigeon in its greetings card arsenal. What would keep me loyal to Moonpig? And will we still be sending greetings cards in, say, 2031 anyway?

No for me… yet

As investments go, I’m torn. While the fall in the Moonpig share price back to near its initial offer price makes it more attractive, I’m not totally convinced the company will grow market share as easily as it thinks.

With this in mind, I wouldn’t feel comfortable buying yet. Expectations have been reduced, but the shares could drift for a while.

The post What’s going on with the Moonpig share price? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Meaty sales

As you might expect, Cranswick is a carnivore’s paradise. It supplies pork, gourmet sausages, cooked meats, cooked poultry, hand-cured and air-dried bacon and gourmet pastry products to retailers both here and abroad. And business is good. 

In today’s Q1 statement, the company said revenue over the 13 weeks to 26 June was up 9.6% on last year, due in part to strong demand from retailers. The FTSE 250 member also said it had seen a “gradual but sustained recovery of the food-to-go and food service channel”.

Exports to the lucrative Far East markets were “well ahead” of sales over the same quarter in 2020 due to higher prices too.

Reasonable price

Looking ahead, Cranswick said its full-year outlook was in line with management’s expectations. That was never likely to send the stock soaring. However, the company’s share price was comfortably in positive territory this morning. Indeed, it’s now getting very close to eclipsing the previous price high of 4,200p.

Despite this, I think Cranswick’s stock still looks reasonably priced. A forecast price-to-earnings (P/E) ratio of a little less than 19, before markets opened, isn’t excessive. For this, I’d be getting a company that boasts a solid balance sheet. It’s also one that continues to invest for growth. With regard to the latter, it’s now successfully raised capacity at its poultry facility in Eye, Suffolk. Production at its new bacon facility in Hull has also commenced.

I’m also attracted to the consistently rising dividends. This tends to be indicative of a well-run, defensive business with predictable earnings.  

Potential threats

I suppose one potential threat to the business is the growing interest in products produced by the likes of US giant Beyond Meat. There’s certainly evidence to suggest that more people have embraced veganism in recent years. 

Having said this, committed meat-eaters are unlikely to make the switch to lab-grown substitutes quickly. Any concerns they may have about how Cranswick may go about its business may also be assuaged by the company retaining its Tier 1 status in the Business Benchmark on Farm Animal Welfare framework for the fifth year running. This essentially means that the FTSE 250 firm is highly regarded for its handling of animals. Interestingly, it is one of only four organisations in the world to receive this accolade. 

From a more general perspective, the argument that I could get faster growth elsewhere is likely true. However, this could require a higher level of risk. That would deviate from my ‘slow and steady’ strategy, especially if it involved buying stakes in headline-grabbing but unprofitable companies. It can often be the case that businesses no one is talking about make for better investments.

Still bullish

Cranswick’s stellar record of steadily improving its owners’ wealth over the years leads me to think that this would still be a great addition to my own growth-focused portfolio. Based on today’s update, the company’s track record, and fair valuation, I’d feel comfortable buying today.

The post This under-the-radar FTSE 250 stock looks great value to me appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Beyond Meat, Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Darktrace (LSE: DARK) share price has now more than doubled since its IPO in April. That’s a huge boost for the London market’s ambitions to attract more tech-related firms. It also indicates just how important investors believe the cybersecurity theme will be going forward.

So, is it too late to buy the stock for my own portfolio?

The Darktrace share price: reasons to be wary

As an investment, Darktrace certainly appears to have a lot of promise. Its utilises what is known as ‘self-learning AI’. In practice, this means its software learns on the job. Picking things up from real-time data rather than from past cyber hacks is patently useful since it allows a company to respond so much quicker to threats. No wonder Darktrace has been so successful in attracting customers. 

There’s also a lot to be said for the positive momentum seen in the Darktrace share price to date. Along with value and quality, this is another factor that, historically, has been shown to deliver great investment returns.  

Notwithstanding this, there are a few things to be aware of. 

Arguably, the most important of these is that this company is currently unprofitable. This could make the Darktrace share price volatile as time goes by. If inflation keeps rising, investors will become less inclined to hold ‘jam tomorrow’ stocks because cash flows aren’t expected for some time. Moreover, Darktrace could be hit by another rotation into battered value stocks that stand to benefit the most from a post-pandemic return to normality.

Regardless of macro-economic issues, there’s also the growing possibility that some traders will simply want to lock in some profit after such as great run. The likelihood of this will surely increase if Darktrace indicates it’ll shortly need to tap investors for more cash to implement its growth strategy. 

A safer option?

An alternative to buying Darktrace is for me to pick an exchange-traded fund that tracks an index of cybersecurity companies. By far the most popular example on the UK market is the L&G Cybersecurity UCITS ETF (LSE: ISPY).

One big advantage to buying this fund is that it gives me instant diversification. This protects me to some extent if the market has a wobble. Moreover, the L&G fund is very liquid. In other words, it shouldn’t be hard for a holder to sell their shares if they really needed to. 

There are however, some drawbacks. The 0.75% ongoing charge is high for a passive fund. I wouldn’t need to think about fees like this if I just bought and held Darktrace stock. 

As you might expect, the recent performance also lags the Darktrace share price. Yes, a 24% gain over the last year is hardly a bad result. Nonetheless, it does endorse billionaire investor Warren Buffett’s belief that knowledgable investors can get better results by owning just a few companies, albeit at greater risk.

I’d buy the theme

On reflection, I’m happy to sit on the sidelines for now as far as this new-stock-on-the-block is concerned. A temporary pullback in the Darktrace share price looks pretty likely, in my opinion. 

Even so, I do think it’s clear cybersecurity will become one of the most popular investing themes of this decade. For me to get some exposure at some point would be prudent.

The post The Darktrace share price has more than doubled! Should I buy? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

After a promising start, the Oatly (LSE: OTLY) share price is now sinking back to its IPO price of $17 a pop. What’s going on? And is this an opportunity for UK investors like me to get involved?

Oatly share price: what gives?

It all started so well. The Oatly share price shot out of the gates on 20 May as its stock began trading in the US market. The involvement of celebrities such as Oprah and Hollywood actress Natalie Portman as investors only raised the Swedish company’s profile even higher. Even Starbucks Chairman Howard Schhultz was a backer. 

And who can blame them for wanting to get involved? Last year, Oatly managed to double revenue to $421m as its plant-based milk and other products continued to be adopted in coffee shops all around the world. The nutritional benefits coupled with a ‘right-on’ environmental message proved an intoxicating mix for market participants.

Unfortunately, reality now appears to be biting down on the Oatly share price.

Reality bites

Of course, a drop in the value of a newly-listed stock isn’t all that unusual. It is to be expected that traders would look to profit from the hype surrounding the initial flotation before moving on to the next shiny new thing.

This makes even more sense when it’s remembered that this company doesn’t make a profit. Oatly reported a net loss of $60.4m last year as it invested in marketing its brand and expanding its range.

Now, all this is fine when things are going swimmingly and traders are whistling on their way to work. It’s not quite so comforting when there’s talk of Covid-19 infection rates rising. Big growth stocks also tend to fall out of favour when inflation rears its head.

So, what happens next?

While I’m in danger of comparing apples with oranges here (maybe oat-based milk substitute with meat substitute burgers), I wonder if we can learn anything from the performance of Beyond Meat. 

Tellingly, Beyond Meat’s share price has been all over the place in the last two years. Those buying the stock at the end of July 2019 will still be heavily under water. Those who bought during the March 2020 market crash will be close to trebling their money. With volatility like this, it’s no wonder the company continues to attract the attention of short-sellers.

Problematically, those doubters seem to now be setting their sights on Oatly. One short-seller — Spruce Point Capital — has now broken cover to question the investment case. This includes asking how a company that makes a similar amount of revenue to Beyond Meat can have a market value that is almost 40% higher. It’s a fair point. 

Of course, the presence of a short-seller or two isn’t a reason for me not to buy this company’s stock. However, it may be the beginning of a sustained attack on the company that could send the Oatly share price even lower. 

I’ll pass…for now

As I mentioned when recently commenting on a promising UK small-cap, I’m bullish on the alternative food sector. Even so, the recent performance of Oatly stock and some ‘interesting’ headlines makes me think it might be wise to hold off buying for now. I don’t see an end to the weakness just yet. 

The post What’s going on with the Oatly share price? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Beyond Meat, Inc. and Starbucks. The Motley Fool UK has recommended the following options: short July 2021 $120 calls on Starbucks. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I think we can conclude that last week’s market debut from money transfer firm Wise (LSE: WISE) was a success. Despite wider market concerns about Covid-19 and inflation, shares breached the 1,000p mark on Friday — that’s already 20% up on its opening price of 800p.

So, is this a fintech flash in the pan? I don’t think so. Here’s why.

1. It’s profitable

One thing I like about Wise is that it’s actually making profits. In fact, it’s been doing so for the last four years. Last year, pre-tax profits doubled to £41m.

As a potential investor, this is important to me. At a time when many tech-related stocks are pushing frothy valuations despite being a long way from making real money, Wise is bucking the trend. Contrast this with tech peer Deliveroo. The takeaway delivery firm is reluctant to even forecast when it expects to make a profit.

Wise’s already-profitable business model could also provide some protection if global markets come off the boil. I’m not so sure Deliveroo offers the same protection.

2. No cash raise

The direct listing of Wise shares is another attraction. The first tech stock to do so on the London Stock Exchange, this means it’s not looking for a fresh injection of cash from investors. Instead, it’s merely selling existing shares on the market. There was no need for investment banks to underwrite this (and charge high fees for doing so). 

This move makes Wise similar to the US listing of music streaming service Spotify in 2018. Although operating in very different sectors, it’s worth noting that the latter’s share price is up over 70% since then. 

The fact that Wise isn’t raising cash also reminds me of a quote from star UK fund manager Terry Smith: “Call us old-fashioned but when we’ve bought shares in a company, we like them to send us money after that, not the other way around. We think that’s how this relationship should work.”

3. Huge growth potential

Fintech is all the rage right now and it’s not hard to see why.  Investment in this space hit $44bn last year.

Sure, there are risks. One that immediately jumps out at me is the threat of cybercriminal attacks. Ongoing regulation could also prove a headwind.

Nevertheless, let’s not overlook the fact that this is a huge market and Wise has the potential to continue disrupting a part of the economy which has hitherto been dominated by big banks and the likes of Western Union. According to the company, its customers already send £5bn across borders every month. 

So, will I be buying?

Not yet. Wise shares could climb higher but I’d be inclined to build a stake slowly. As Dr Martens has shown, traders can be quick to sell after the initial hype dies down. No share price rises in a straight line, regardless of its growth potential.

The high number of companies coming to market right now also make me wary. This is nothing against Wise specifically, but it does imply that many founders now think they’ll get an optimum price for their shares. This could indicate markets are peaking. There’s something to be said for zigging when the majority are zagging.

Over the long term, Wise shares could prove a very wise investment. For now, I’ll watch from the sidelines.

The post 3 reasons I’m excited about Wise shares appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Spotify Technology. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I tend to avoid buying stock in newly-listed companies. The disastrous Deliveroo IPO showed that IPOs are often priced too high, leaving holders under water from the off. But there are exceptions. The  big jump seen in the Victorian Plumbing (LSE: VIC) share price after its Tuesday IPO showed that.

What is Victorian Plumbing?

Founded in a shed in 1999 by Mark Radcliffe, Victorian Plumbing has grown to become a major online retailer. It sells 24,000 branded and in-house-designed bathrooms and accessories. Selling to both the public and trade customers, the company now operates a 109,000 square foot warehouse in Skelmersdale, Merseyside. It also has a showroom in Formby and a ‘digital growth hub’ in Birmingham.

What most sticks out to me about VIC, however, is that its £850m valuation on admission made it the biggest company to IPO on the Alternative Investment Market (AIM). Thanks to a flurry of trading over the last two days, this market cap has already charged ahead of the £1bn mark!

Victorian Plumbing’s share price sat just below 336p as markets closed yesterday. That’s already a great return for those institutional investors that bought in at 262p a pop.

So, would I buy it?

Would I buy at the current price? Quite possibly. There are many things I like about this company. 

For one, it’s already generating serious money. Revenues of almost £209m were logged in the year to September 2020. This arguably makes the investment case far less risky compared to the average AIM-listed blue-sky stock.

Another attraction is the online-only business model. Multiple UK lockdowns have only served to accelerate the structural shift to digital shopping. VIC is clearly well placed to capitalise on this.  

The growth potential is also pretty compelling. By placing more emphasis on attracting trade customers and growing its European presence as planned, I think Victorian Plumbing might replicate the success of £5bn-cap kitchen supplier Howden Joinery in time.

Knowing that its founder will still have ‘skin in the game’ is another positive. True, Mark Radcliffe’s share ownership will reportedly drop massively from 72% to 46% post-IPO. However, his interests should still be firmly aligned with retail investors like me. Incidentally, it’s worth noting that heavyweights such as JPMorgan are also on the register. 

Priced in?

Nevertheless, there’s no guarantee that the Victorian Plumbing share price will keep rising. Aside from a lack of track record on the market, one needs to bear in mind that the firm is listing at a time when the home improvement industry is conveniently booming. Companies like B&Q owner Kingfisher and Travis Perkins are just two examples of those that have reported strong trading over the last year or so.

Whether this lasts is difficult to say. I certainly wouldn’t be surprised if revenue growth at VIC does moderate over the current financial year as we spend our money on other things post-pandemic. As such, I do question whether now is the right time to snap up its shares. Let’s not forget that every transaction always involves someone who thinks it’s actually time to sell.

Watchlist bound

Victorian Plumbing grabs my interest in a way that other recent IPOs have not. Even so, I’m content to wait for the initial excitement to die down before deciding whether to take a stake. Today, it’s on my watch list. 

The post The Victorian Plumbing share price has soared since its IPO. Should I buy? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.