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Penny stocks can be volatile. Yes, I know that all stocks can be there, but low prices seem to shine brighter than others when emotions shine. And they can take it hard on the chin when investors feel nervous.
Currently, traders are mixed about the fortunes of these very small companies in 2025. That is in line with overall market sentiment.
Despite the painfully slow economic recovery, political events are taking their toll. Economists fear that Donald Trump’s tariff plans could hurt many countries, including the US. And the Bank of England expects the Labor budget to raise the rate of inflation again in 2025.
Growing year?
However, according to Jeffries, 66% of market respondents are expecting FTSE 100 to finish 2025 more. And that optimism reflects the outlook for stock markets in general.
Growth seems to be getting harder to come by, and I think that could affect penny stocks either way. Maybe investors will back away from growth and seek safety in earnings? Or with penny stocks that are generally bought for growth, maybe they will take more risk and go for it?
Whichever way the end of the market goes in the next 12 months, I certainly see some that I think are worth considering.
For a long time
I would still only buy a penny stock based on its long-term potential and not when the emotional winds might blow.
That brings Tops Tiles (LSE: TPT) to shine, although I suspect shareholders may have to be patient for a while.
The stock price is down 45% in the last five years, and I’m not surprised.
Tops makes wall and floor tiles, laminates, wood flooring, and similar products. Those should do well when property booms, when people are remodeling and decorating, and there is a decent amount of spare cash in the home owners’ pockets.
And, well, the last few years haven’t been kind to people in that market.
Better times ahead?
But as inflation and interest rates begin to make home renovations look more attractive, I think demand may begin to shift.
I think it might take longer than we expected, mind. Every time we start to open our eyes to a bright future, it seems that something is going to kick the sand into it.
However, the weakness of the share price means we are looking at a healthy dividend yield of 9.1%. That’s even a loss per share in the cards for 2024, with forecasts seeing a reversal in 2025.
The rating is improving
I would rate the dividend as risky until returns return to balance it. Analysts expect that to happen in 2025, although even in 2026, they see only 1.4 times coverage.
And even though the total assumed debt looks low at £72m in 2026, this is a company with a capital market of only £79m. There is also danger.
I have come close to buying Topps Tiles in the past. And I consider you too.
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