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A number of penny shares are in obscure companies most individuals have by no means heard of. However not all. Take ME Group (LSE: MEGP) for example. 4 years in the past, the corporate was buying and selling firmly in penny share territory. Since then, it has greater than quadrupled, because of strong earnings and money flows.
When you might by no means have heard of the corporate, there’s a truthful probability you’ve gotten seen (and even used) one among its hundreds of photograph machines in supermarkets, buying centres, and elsewhere, or one among its RevolutIon laundry machines.
Engaging enterprise mannequin
It is a profitable enterprise. The corporate operates in areas which have excessive demand. Even throughout the depths of the pandemic, when ME Group was buying and selling as a penny share, revenues fell however didn’t collapse.
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Relating to profitability, earnings have moved round.
Even earlier than the pandemic earnings per share had declined – and so they took a pummelling over the following a number of years, serving to clarify why ME was buying and selling as a penny share.
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However because the chart above reveals, they’re now stronger than they’ve ever been. I feel that speaks to the attraction of ME’s enterprise mannequin: its automated machine community signifies that its labour prices could be saved low, whereas the companies it affords are inclined to have strong demand. If folks have to do their laundry, they should do their laundry.
Valuation may supply long-term worth
However a superb enterprise doesn’t essentially make a superb funding. Valuation issues too.
I feel ME Group stacks up pretty properly on that entrance. Trying on the present price-to-earnings ratio of 13, I feel it affords the potential for long-term appreciation if earnings per share proceed to extend in future.
On high of that, the dividend yield of 4.3% appears to be like engaging to me.
I feel the corporate’s distinctive property of machines and lengthy expertise of merchandising machines helps set it other than rivals. However there are dangers. As we noticed throughout the pandemic, any drop within the variety of folks visiting buying centres can result in a pointy drop in demand.
Purchase or wait?
Having been a penny share inside the final 4 years, although, may ME Group head again there any time quickly?
Something is feasible within the markets, after all, however for now at the least I feel the agency’s strong enterprise efficiency is prone to hold the share worth buoyant. Its lack of competitors in lots of areas offers it pricing energy, which I feel may imply we see even larger earnings in future.
So, despite the fact that it now not affords the screaming worth it did as a penny share, if I had spare money to take a position at this time I might be completely satisfied so as to add ME Group to my portfolio.
