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A penny stock that caught my eye recently is Bakkavor group (LSE:BAKK). Let’s see if this is a good time to buy some stock for my holdings.
Bakkavor is a leading supplier of freshly prepared food (FPF). With more than 18,500 employees across 45 locations, the company produces a variety of fresh foods, including ready meals, pizzas, desserts, salads and more. His customers include the largest supermarkets in Great Britain. It also has an international presence in the US and China.
It is worth remembering that a penny stock is a stock that trades for less than $1. Shares of Bakkavor are currently trading for 97p. At this time last year, they were trading for 84p, which is up 15% over a 12-month period.
To buy or not to buy?
Starting with the bull case, I believe Bakkavor has defensive properties. This is because it produces food, which is an essential need for everyone, regardless of the economic outlook. After all, everyone has to eat. In addition, its international presence in lucrative markets such as the US and China gives it the opportunity to increase profits and returns.
Subsequently, Bakkavor has a good track record in terms of performance. I see sales and performance have increased over the past three years. More recently, a Q1 trading update released at the end of May made for some good reading. The group’s turnover increased by almost 8% compared to the same period last year. In addition, the company said it continued to increase its market share in Britain, its main market. Finally, full-year expectations have been upgraded to the high end of expectations. However, I do understand that past performance is no guarantee of future performance and predictions may not always come true.
Finally, Bakkavor stocks would increase my passive income through dividends. A dividend yield of just over 7% is above average for a penny stock. However, I do understand that dividends are never guaranteed.
From a bearish perspective, Bakkavor has confirmed that inflationary pressures are affecting the company’s profitability. These include the rising costs of raw materials, packaging, labor and distribution. When profit margins are under pressure, returns and sentiment can be negatively affected.
Another issue Bakkavor mentioned is the post-pandemic hangover in China, a market where the country is looking to expand and increase its presence. The country has faced several issues and volumes of Bakkavor have declined. However, in the recent update, it was mentioned that volumes there were once again on an upward trend.
A penny stock I would buy
After reviewing the pros and cons, I like the look of Bakkavor stocks. In fact, I’d be willing to buy some for my belongings next time I have some money to invest.
Bakkavor’s defensive capabilities, international presence and trading performance were big factors in my decision making. Plus, a penny stock with such an attractive dividend yield is hard for me to ignore as I want to make sure my investments increase my passive income.
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