Investing in penny stocks is undeniably risky. And when it comes to capitalising on the rise of electric vehicles (EVs), it seems risky to consider this section of the stock market. After all, plenty of EV companies have been surging from investor excitement in the last couple of years. Yet most have since collapsed.
But it seems investors caught up in the excitement over EV manufacturers have missed what could be a far more lucrative way of investing in this space. One British company, in particular, is quietly working behind the scenes supplying critical EV components. And with demand surging, the market-cap is expanding rapidly. So much so that in the last couple of months it’s no longer in penny stock territory.
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The company in question is Solid State (LSE:SOLI), and its share price is up nearly 30% since October 2022. As a quick reminder, Solid State designs, manufactures, and supplies electronic components for various industries, including aerospace, defence and, of course, EVs.
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After decades of steady operational expansion, the firm now has the capacity to work with industry leaders. Among its blossoming list of top-tier clients include BAE Systems, London Underground and, most recently, NATO.
One of its acquired subsidiaries, Willow Technologies, manufactures the globally recognised Durakool relay and contactor electric components. Roughly 20 of these devices can be found in every EV worldwide as they are an essential part of modern vehicles’ drive, battery, lighting, and steering system.
With demand surging across the entire firm’s product portfolio, growth has been fairly spectacular. Looking at the latest interim results, revenue is up 50.8% year-on-year, with pre-tax profits exploding by 98.1%! Pairing this with a continually expanding order book, the ex-penny stock looks primed for even more rapid growth.
What are the risks?
As exciting as this enterprise seems, no investment is risk-free. And while Solid State may no longer be classified as a penny stock, it’s still a small enterprise with a market-cap of just £143.5m.
The biggest concern moving forward is supply chain constraints. So far, the business has proven to be fairly resilient. But management has said component shortages are creating problems that will likely continue throughout 2023.
Needless to say, if Solid State cannot complete orders on time, growth could slow considerably. Not to mention the risk of looking unreliable in the eyes of customers, which would be especially problematic given the firm works with military contracts.
Given management’s track record, I’m willing to give this ex-penny stock the benefit of the doubt. After all, the current supply chain disruptions are hitting almost everyone in the electronics industry. And Solid State seems to be faring better than most.
With EV demand still on the rise, along with other new technologies like IoT and 5G, the business seems to be in a strong position. As such, the potential rewards make the risks worth taking, in my opinion. That’s why I’m tempted to add this company to my portfolio once more capital becomes available.
