Penny stocks, which are shares priced below £1 with market caps below £100m, are known for their high-risk, high-reward nature. One such company that has caught my eye is Gateley Holdings (LSE:GTLY), a full-service law firm that initially started as a penny stock on the London Stock Exchange nine years ago. Although the Gateley share price is currently at £1.14, down from its peak above £2.57 in late 2021, I believe there is potential for a rebound.
Gateley stands out as an industry innovator in the legal sector. While UK law firms have had the option to go public since 2011, only a few have taken this route. Gateley was the first to seek external investment through its AIM floatation, distinguishing itself from the majority of private law firms. The firm has also made strategic acquisitions in non-legal sectors such as chartered surveyors and property consultants, contributing significantly to revenue growth and diversification.
Despite a 15% decline in half-year adjusted operating profit and uncertainty surrounding full-year guidance, Gateley offers an attractive dividend yield of 8.3% due to the share price fall. With a low forward price-to-earnings (P/E) ratio of 6.8, the stock appears undervalued, potentially making it oversold in the market. While there are concerns about managing partnerships with external shareholders, Gateley’s proactive approach to investment in new growth areas could lead to a share price recovery in the future. In conclusion, Gateley’s unique position in the legal industry and promising valuation make it a stock worth considering for potential investors.