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Two penny stocks with the potential to be multibaggers?


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Penny stocks are popular among investors who are prepared to embrace risk in their portfolios in pursuit of greater returns. These companies have share prices below £1 and market capitalisations under £100m and they’re often very volatile investments.

I’ve been considering the growth prospects of two penny shares recently. It’s fair to say these stocks — Bitcoin miner Argo Blockchain (LSE:ARB) and troubled lender Metro Bank (LSE:MTRO) — have experienced wildly contrasting fortunes in October.

Let’s explore the outlook for both businesses and whether they have the potential to turbocharge investors’ returns.

Argo Blockchain

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October’s been a difficult month for the stock market overall, but not so for Bitcoin. The price of one coin is now above £28,000, having started the year at £13,723.

Consequently, the Argo Blockchain share price has surged 20% so far this month. Given the Bitcoin miner generates revenue in the cryptocurrency, the rising price of so-called ‘digital gold’ is a key tailwind.

After all, Bitcoin has staged some remarkable rallies in the past. If it does so again in the future, Argo Blockchain shares may follow.

However, Bitcoin’s a notoriously volatile asset. Rubbished by Warren Buffett as “rat poison squared“, it certainly provokes controversy in the investment community.

In addition, Argo Blockchain faces company-specific risks that the cryptocurrency doesn’t. The collapse of the FTX exchange serves as a warning to investors that crypto businesses can go bankrupt while Bitcoin itself soldiers on.

Argo Blockchain has been a multi-bagger stock before thanks to its stunning growth in 2021. But, those gains were short-lived. Considering the current mining rewards of 6.25 BTC per block are due to be halved soon, I’m concerned the stock was a one-hit wonder.

The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Metro Bank

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At the other end of the spectrum, we have Metro Bank shares. They’ve plummeted 30% this month amid desperate efforts to shore up the ‘challenger’ bank’s balance sheet.

The share price tailspin was triggered by the lender’s announcement that it needed to raise hundreds of millions of pounds to refinance debts as well as a bond repayment due in a year’s time.

Thankfully, a £925m rescue deal has quashed the sell-off for now. Metro Bank managed to secure £325m in capital from shareholders, including £150m of fresh equity, as well as £600m in debt refinancing.

The upshot of this is that the bank’s market cap has dwindled to a meagre £75.6m — a figure that might pique the curiosity of value investors.

With mooted plans to raise a further £3bn in cash from selling parts of its residential mortgage book, there are potentially significant rewards on offer for investors if Metro Bank can successfully stage a turnaround.

However, I’m sceptical. After all, the Metro Bank share price has fallen 98% since the IPO. More importantly, a giant net debt burden makes the bank’s diminished market cap look rather less attractive. In my view, the lender remains uncomfortably far from safety.

Risk and reward

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Credible points can be made about the growth potential of these two penny stocks at today’s prices. But, I’m yet to be convinced to buy shares in either company.

I consider the risks to be too great for my own portfolio, but this is something each individual investor has to judge for themselves.

The post 2 penny stocks with multi-bagger potential? appeared first on The Motley Fool UK.

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Charlie Carman 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.

Motley Fool UK 2023

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