1 ASX penny stock I'd buy now while it's only 5 cents

I think this ASX penny stock has outsized growth potential.

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Hunting for a quality ASX penny stock with outsized growth potential?

Then you might want to run your slide rule over uranium miner Alligator Energy Ltd (ASX: AGE).

The uranium-focused minerals explorer has projects in Italy, South Australia and the Northern Territory.

At the current share price of 5.3 cents, this ASX penny stock has a market cap of $213 million.

What's been happening with this ASX penny stock?

As an indication of the growth potential on offer, 12 months ago, I could have bought shares for 3.2 cents apiece. Meaning, I'd be sitting on a tidy 66% gain already.

Now, this ASX penny stock has underperformed most of its uranium peers so far in 2024, with shares down 10% since the closing bell on 29 December.

I believe most of that underperformance is due to the fact Alligator Energy isn't yet selling uranium into the market. So it hasn't benefited from the surging price of the radioactive metal.

However, Alligator has been plenty active on the exploration front.

At its December quarterly update (the most recent one available), the company reported on promising results from several of its projects, including Samphire, located in South Australia.

Alligator completed resource infill drilling at the uranium project in early October. Over the 2023 calendar year, 117 holes, totalling 10,062 metres, were drilled at Samphire.

Management said the project's Indicated Mineral Resource increased by 21% to 12.9 million pounds at an average grade of 754 parts per million (ppm) U3O8.

That's up 115% since Alligator Energy kicked off resource drilling at the project in 2022. The December quarter results saw 2.2 million pounds of U3O8 converted to the Indicated Resource category.

And the ASX penny stock has secured a drill rig for year-round drilling at Samphire this year.

As at 31 December, Alligator Energy has a cash balance of $36.6 million.

Promising growth outlook

There are a lot of potential tailwinds that could send this ASX penny stock towards a dollar stock.

In March, Alligator Energy joined the All Ordinaries Index (ASX: XAO) as part of the S&P Dow Jones Indices quarterly rebalance. Now that it's listed on the All Ords, more fund managers will be able to hold the ASX uranium stock, and it could gain broader coverage.

Then there's the strong growth in global uranium demand coupled with limited new supplies coming to the market over the medium term.

Three years ago uranium was selling for just under US$30 per pound. In 2023, the price of the radioactive metal averaged US$67 per pound. Prices then hit record highs of more than US$105 in early February.

Prices have come off the boil since then but look to have found support near US$90 per pound.

With a host of nations turning to nuclear energy for reliable, emission-free baseload power, I expect uranium prices to remain near historic highs when Alligator Energy begins selling into the market.

That won't happen overnight. But it should offer ongoing growth potential for this ASX penny stock.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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