I’m on the hunt for the best cheap UK shares to buy. Here are three penny stocks I think could deliver terrific profits growth over the next decade.
A penny stock for the homeworking boom
Fresh Covid-19 restrictions in Britain could potentially provide a boost to software firms like 1Spatial (LSE: SPA). New ‘Plan B’ rules have put homeworking firmly back on the agenda, meaning companies will have to keep spending to keep their workers connected. This bodes well for 1Spatial because it provides location master data management (or LMDM) software that allows users to connect and to share data from multiple sources in different locations.
Latest financials showed 1Spatial’s revenues rise 8% in the six months to July as the steady migration from office working to remote working continued. I think this penny stock’s a great way for me to make money from this theme in spite of the company’s elevated valuation. Today 1Spatial trades on a forward price-to-earnings (P/E) ratio of 68 times at current prices of 50p. Eye-popping multiples are extremely common among tech shares that have high growth prospects. But they also mean share price collapses can happen if news flow begins to worsen even marginally.
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Full steam ahead
The prospect of new Covid-19 lockdowns also bodes well for UK hobby shares like Hornby (LSE: HRN). Sales at the models mammoth rocketed in 2020 as housebound Brits sought to entertain themselves. They’ve kept rising since then, too, even as restrictions have been scaled back. Revenues rose 3% in the six months to September.
I wouldn’t just buy Hornby because of the near-term profits boost it could receive from the pandemic. Its packed stable of products like Airfix model kits, Corgi miniature cars, and own-branded train sets are considered market leaders. The have a timeless appeal that allows the business to raise prices even when broader retail conditions are tough. I think this immense brand power makes them a top buy even though supply chain pressures are hitting sales right now. Hornby shares can be picked up at 40p apiece.
Cleaning up nicely
I believe Photo-Me International’s (LSE: PHTM) expansion into other rapidly growing self-service markets could help to turbocharge profits growth. The penny stock is perhaps best known for its photo booths and laundry services but it also operates amusement machines, digital photo printing points, and food vending machines. It has a broad geographic footprint, too, giving it extra strength through diversification as well as exposure to fast-growing emerging markets. Its roughly 45,000 machines are spread across 17 countries all over the globe.
Sales at Photo-Me could suffer if broader economic conditions worsen. Its machines are located in shopping malls, travel hubs, and supermarkets, places where footfall could drop if consumer spending comes under pressure. However, I believe the penny stock’s low valuation reflects this ever-present risk. At 58p per share Photo-Me trades on a forward P/E ratio of just 7.7 times.
