The allure of penny stocks is undeniable. But selecting from among them is not always easy. One way of doing so, is to start at the lowest priced stock. My logic is this: if penny stocks have merit to them, then the lowest priced among them could have even more.
The cheapest FTSE-listed penny stock
I decided to look at the cheapest FTSE-listed penny stock. The stock in question is Esken (LSE: ESKN), which is priced at 14p. Formerly known as the Stobart Group, the company operates energy and aviation businesses. Within aviation, it manages London Southend Airport. It also runs Stobart Aviation Services. Under this, it provides services like baggage handling, check-in and other logistics solutions for both airports and airlines. Its energy business, called Stobart Energy, supplies fuel to biomass plants.
Why did Esken’s share price drop?
It was already a penny stock before the coronavirus crisis started, but its share price has dropped dramatically since and is down by almost half in a year. Further, its descent has gathered speed since May this year. It is now trading almost 85% below its pre-pandemic price, even though it still maintains a fairly decent market capitalisation of over £140m.
So is there any possibility of a rise in Esken’s share price, especially now that the pandemic appears to be largely controlled? Given the nature of its business, it was impacted significantly last year. Its aviation business in particular was significantly reduced and its energy segment also saw a small drop in revenue.
Recovery visible
However, for the first six months of its current financial year (the period that ended on 31 August), the company showed a fair degree of recovery. It revenues increased by 7.7% from the same time last year, largely due to growth in its energy division. The aviations arm’s revenues also declined far less so far this year than they did for the last full financial year.
The company managed to make a profit on an earnings before interest, taxes, depreciation and amortisation (EBITDA) basis. It also has a somewhat optimistic outlook, especially based on the opening up of travel.
My takeaway
This is all quite encouraging. But I have to point out that the company was loss-making even before the pandemic started. And combined with the fact that there is still some uncertainty about Covid-19 and the economic recovery, I have my doubts whether it will swing back to net profit any time soon.
I expect other investors feel this way too, which could explain why its share price is presently trading at such abysmal levels. I do, however, think that the company has potential. Other aviation-related stocks, including FTSE 100 biggies like International Consolidated Airlines Group and Rolls-Royce, are also still trading at pre-pandemic levels. Unlike them, however, it does not have the benefit of a big size. That makes it more vulnerable if another big challenge were to arise. For that reason, I am putting it on my watchlist and intend to see how things shape up for it in the future.
