One penny stock I have decided to consider adding to my holdings is Coats Group (LSE:COA) Should I buy the shares? Let’s take a closer look at the pros and cons to help me decide.
Thread manufacturer
As a quick introduction, Coats is a leading thread manufacturer for industrial and consumer use. It creates and sells thread, knitting yarns, and other related products such as zips, used in the apparel and footwear industry. Coats currently has a sales presence in over 100 countries throughout the world.
It is worth remembering a penny stock is one that trades for less than £1. So what’s happening with Coats shares currently? As I write, they’re trading for 66p, which is the same as at this time last year. The shares have pulled back since the turn of the year, by 8% from 72p to current levels. I believe this is due to macroeconomic and geopolitical headwinds.
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To buy or not to buy
So what are the pros and cons of me buying the shares?
FOR: Coats has a long history of trading, an impressive growth story to date, and is a leading business in its respective industry too. It also has a good track record of performance. I am aware that past performance is not a guarantee of the future, however. Looking back, it had grown revenue and profit for two years before the pandemic struck in 2020. It bounced back in 2021 and levels exceeded pre-pandemic trading.
AGAINST: Macroeconomic headwinds could have an impact on Coats’ performance and returns. Soaring inflation, the rising cost of living, and a global supply chain crisis could impact it. Rising costs could impact profit levels, which in turn could affect overall performance and shareholder returns. The supply chain crisis could affect its worldwide operations, in turn, affecting sales and performance.
FOR: At current levels, Coats shares look decent value for money on a price-to-earnings ratio of 12. Furthermore, the shares would boost my passive income stream through dividend payments. Its current dividend yield stands at 2.5%. This is higher than the FTSE 250 average of just less than 2%. I am aware that dividends can be cancelled at any time at the discretion of the business, however.
AGAINST: A shorter-term risk to consider is demand for Coats’ products as macroeconomic issues have caused a cost-of-living crisis here in the UK and soaring inflation in other countries. There may be less demand for apparel and footwear. This could result in Coats’ industrial customers ordering less product, which could affect performance and returns.
A penny stock I’d buy
I think Coats is a great business with an excellent track record to boot. The shares are trading at a decent price and also pay a dividend. Its worldwide presence fills me with confidence that it can continue to grow and provide consistent returns. I would add Coats shares to my holdings for returns and growth.
