1 ASX penny stock to buy in May while it is still only 47 cents

Bell Potter believes big returns could be on offer from this small cap.

| More on:
Kid stacking coins from the jar.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you have a higher-than-average risk tolerance, then it could be worth checking out the ASX penny stock listed below.

Just over three years ago, this company was far from a penny stock with a share price of over $15.00.

But a lot has happened since then for good and for bad, which leads us to today.

The ASX penny stock in question is sports betting company Pointsbet Holdings Ltd (ASX: PBH), which is currently changing hands for 47 cents.

Is this an ASX penny stock to buy?

The team at Bell Potter thinks that Pointsbet shares are a great option at current levels.

So much so, this morning it reiterated its buy rating on the company's shares with a reduced price target of 63 cents.

It is worth noting that the reduction in its price target isn't a downgrade per se. Rather, it reflects the company's recent decision to return 39 cents per share in capital to shareholders following the completion of the sale of its US operations.

Based on the current Pointsbet share price, this new price target implies a potential upside of 34% for investors over the next 12 months.

What did the broker say?

Bell Potter has been running the rule over the ASX penny stock following the sale of its US operations and believes the market is undervaluing its businesses. It explains:

We note that, at the current share price, the Australian and Canadian businesses combined are being valued at approximately $126m assuming cash of around $30m after the second capital distribution. In our view this is too low given we value the Australian business alone at $150m. A value of $126m for Australia – if we assume Canada is worth nothing – equates to an EBITDA multiple of c.8x based on our FY25 forecasts (after allocating a portion of corporate overheads). But obviously we believe Canada is worth something – as well as the Banach technology – so the actual multiple being applied to Australia is <8x.

The broker also believes that Pointsbet could be an attractive takeover target for one of its rivals. It adds:

We also believe PointsBet is a potential takeover target given the simplified structure (just Australia and Canada), the shift to cash flow/EBITDA positive, the sufficiently strong Balance Street, the proprietary technology and it being the fifth largest player in Australia. The market here is now relatively mature so in our view the only way to grow meaningfully is through consolidation and PointsBet is an obvious potential target.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended PointsBet. 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.

More on Small Cap Shares

A woman wearing glasses and a black top smiles broadly as she stares at a money yarn full of coins representing the rising JB Hi-Fi share price and rising dividends over the past five years
Small Cap Shares

Analysts say these small cap ASX shares can deliver big returns

Analysts think these small caps are top options right now. But why?

Read more »

a woman holds a facebook like thumbs up sign high above her head. She has a very happy smile on her face.
Small Cap Shares

Morgans names the best small cap ASX shares to buy in May

The broker has these small caps on its best ideas list this month.

Read more »

Kid putting a coin in a piggy bank.
Small Cap Shares

Is it time to start buying up ASX small-cap shares?

Can small-caps deliver big returns? One fund manager has the answer.

Read more »

Two young boys with tennis racquets and wearing caps shake hands over a tennis ten on a tennie court.
Small Cap Shares

2 ASX small-cap shares with excellent potential I'd buy right now

I think these two ASX online technology-related stocks have excellent growth potential.

Read more »

A woman wearing glasses and a black top smiles broadly as she stares at a money yarn full of coins representing the rising JB Hi-Fi share price and rising dividends over the past five years
Small Cap Shares

Morgans rates these ASX small-cap shares as best buys

Big returns could be on the cards for buyers of these small caps according to the broker.

Read more »

Small girl giving a fist bump with a piggy bank in front of her.
Small Cap Shares

How this 'rare window of opportunity' is opening for ASX small-cap shares

The senior fund managers at Ophir believe ASX small-cap stocks are set to trounce their larger peers.

Read more »

The Two little girls smiling upside down on a bed.

2 exciting ASX small-cap stocks that could grow significantly

International growth is very compelling for these stocks.

Read more »

Kid stacking coins from the jar.
Resources Shares

1 ASX penny stock I'd buy in April while it is still only 21 cents

Up 135% since February, I think this ASX penny stock has a lot more gains ahead.

Read more »