Best UK penny stocks for traders and investors

• What is a penny stock?
• Risk and rewards of penny stocks
• How to trade penny stocks
• Top UK penny stock gainers

What is a penny stock?

Penny stocks or penny shares are common stock that trade with a share price below £1 in the UK and below $5 in the US. As they are small, low-valued businesses, they offer higher risk and reward to traders.

Penny stocks are regarded as a more speculative investment than larger businesses because they are geared for growth and often loss-making, with many yet to generate any income or develop a viable product or service.

The US Securities and Exchange Commission (SEC) has formally defined a US penny stock as one with a share price below $5 per share, having previously been a stock below $1 per share beforehand. Many of these are quoted over-the-counter (OTC) but some also trade on exchanges.

The UK does not have its own formal definition although a penny stock is generally considered to have a share price of below £1, with most confined to AIM.

Ready to buy or trade UK penny stocks? Open an account to get started, or practise trading with a demo account.

What are the risks and rewards associated with penny stocks?

A number of well-known companies started off as penny stocks. Those that invested in companies such as Ford Motor Co or JD Sports Fashion in the early stages have been well rewarded, however it is important to stress that many penny stocks ultimately fail and that investing can be highly speculative.

The share prices of penny stocks can be volatile, either as a result of lower liquidity or because it is sensitive to news and market developments. Penny stocks can turn into a huge success or an utter failure overnight: winning or losing one contract or the level of success of a new product, for example, can decide their future. Many penny stocks have no track record and it is not uncommon for them to have no assets, operations or revenue.

Products and service offerings are often still in development and yet to be tested in the actual market. This could range from a small pharma stock developing a new drug to a junior miner digging for gold in foreign destinations, both of which are highly risky endeavours but ones that can be transformational if they are successful.

News coverage and analysis of penny stocks is harder to come by compared to gaining insight into larger, more popular stocks, and issues of corruption and fraud tend to be more prominent, although even the largest stocks are exposed to these matters too.

Read more about Singapore's penny stock crash of 2013

It is also worth noting that penny stocks are more likely to raise equity from investors on an ongoing basis as it gives them a way of securing vital funds for growth if traditional lenders refuse to provide debt, or if any available debt is too pricey. Each fundraising dilutes the shareholding of existing investors and devalues the price per share.

How to trade penny stocks

• Decide whether you want to invest in penny stocks or if you want to trade them. You buy the shares outright from just £3 when you invest using an IG share trading account and receive any dividends that are paid out. This is not the case when you trade penny stocks, but you can boost the risk and returns by utilising leverage with IG’s CFD services
• Research which penny stocks you want to buy or trade. We’ve listed 10 penny stock risers below
• Open an IG account to get started, or try your strategy out risk-free by opening an IG demo account
• Make your first investment or place your first trade

What are the best penny stocks to trade?

There is an array of penny stocks operating in a broad range of industries for investors to choose from, including some names that will be well known to UK investors and consumers. While some penny stocks are small firms chasing growth there are some big names that have subsequently become penny stocks following steep falls in value.

Top 10 UK penny stock gainers

The table below outlines ten UK penny stocks that have seen their share prices soar higher in 2020, despite the coronavirus crisis weighing heavily on most equities. The qualification criteria is that the companies listed have a share price below £1 and a market cap of below £100 million.

ValiRx

ValiRx is a life science company that focuses on developing clinical stage cancer treatments. Shares were trading at just 0.12p at the start of the year but now sit at 11.7p, representing a stellar rise over the last four months.

The company issued a stark warning earlier this year that it was in desperate need of cash and relying on its creditors to keep going, putting the company in a precarious position. Fortunately, it managed to conditionally raise £200,000 by issuing shares at 3.5 pence each and said there were ‘ a number of potential funders who have indicated conditional willingness to invest’ as a result. It also restructured its share capital after the placing.

The ValiRx share price has managed to find higher ground since then after reports began circulating on social media that it was on the verge of forming a joint venture for three of its non-core pieces of intellectual property, which the company confirmed on 29 April.

‘The company confirms that it is in talks with a third-party in relation to a joint venture. However, there is no certainty the talks will conclude in a successful manner, nor that in the event that the joint venture is agreed, that the terms will be favourable to the company,’ said ValiRx.

It has been a tough start to the year for ValiRx but investors are hoping things could start to turn around for a company that was on the verge of bankruptcy just weeks ago. Its market cap remains modest at just over £2 million, but it could be vulnerable to falls considering the meteoric rise in its share price during the last month.

Galantas Gold

Galantas Gold is a miner that offers a geographical difference by producing gold, silver and lead in Northern Ireland. Shares had slipped below 1p in March and April 2020, but rallied to 8p per share on 17 April after it consolidated its share capital (turning every ten existing shares into one new share), which naturally pushes the price higher.

The UK’s response to Covid-19 means its operations have been negatively impacted. It said its gold processing operations would be temporarily shut at the start of April for an initial four-to-six weeks. Still, the company has said it has already applied for government loan and grant support. It has also made a regulatory breakthrough by agreeing terms so that blasting operations can increase to a ‘commercial level’, which is key to expanding and developing its project.

More notably, Galantas could be on the cusp of striking a major deal. It revealed a ‘number of parties’ had shown an interest in either buying the company or forming a joint venture, which could bring a larger player into the fold. It said in early April that due diligence was being carried out on a ‘remote basis’ but warned the coronavirus meant there will be a delay in the full assessments being completed.

The share consolidation made a large contribution to the boost in the share price since mid-April, but it has still managed to find even higher ground as investors bank on a potential deal. There could be news beforehand but it has said it will release the technical results of a recent drilling campaign carried out underground at the Omagh mine before 29 May.

Starvest

Starvest is an investment company that invests in early stage mining companies that are either newly listed or at a pre-IPO stage. The companies it invests in are typically in the exploration or development stage and not yet in production, meaning Starvest’s Net Asset Value (NAV) is derived from the value of its investments.

On 11 February it released annual results for the year to the end of September 2019 showing its NAV had risen by 25% after several companies increased in value. It is invested in a number of AIM-listed companies, including gold miner-recently-turned cash shell Greatland Gold, which has jumped by more than 300% in 2020, and gold miner Ariana Resources, which is up 33%. Others include Cora Gold, KEFI Minerals, Alba Mineral Resources, Oracle Power, Salt Lake Potash and Sunrise Resources.

As an investment firm, Starvest’s share price is derived from its NAV, which in turn is driven by the share prices of the companies it is invested in. Starvest shares have managed to climb to their highest level since 2012 as its investments have made progress, but they are exposed to the risks of early-stage mining and energy stocks and a downturn in commodity markets.

e-Therapeutics

UK-based e-Therapeutics has a digital platform that helps companies discover novel and better drugs at a faster pace. The company has undergone radical change this year after overhauling its board and seeing its chairman, chief executive, chief financial officer and others leave the business and be replaced with some fresh faces. That happened around the same time it sold just under 20% of the business in a placing for £1.6 million, or 3p per share.

In March it released annual results for the year to the end of January 2020, showing the company is still loss-making and generating minor amounts of revenue. Still, the company’s two primary pieces of tech continue to secure deals with big pharmaceutical companies.

Soon after that, it released a statement that said it was trying to help in the fight against Covid-19. It says it has used its tech to screen compounds that can help protect humans from influenza, and believes the same technique could be used for the new coronavirus. It said it has already started this work but admits it needs partners to speed up the process.

‘We feel very strongly that we must make explicit the following. It is not our intention to make a frivolous press release that capitalises on a global crisis to inflate our share price artificially or to create unrealistic expectations. We are motivated solely by a recognition that we have a platform, validated by our influenza work, and other projects, that has the potential to have an impact and we feel ethically obligated to make this known,’ the company said.

Omega Diagnostics

Omega Diagnostics originally made its name by making tests for a range of infectious diseases such as syphilis, tuberculosis, dengue fever, chagas disease and malaria. Today, it offers tests for CD4 proteins in people with HIV and, after acquiring several businesses, for food intolerances and allergies.

Omega Diagnostics shares started to gain ground in early April when the company revealed it was joining the fight against Covid-19. It signed a Memorandum of Understanding (MoU) with three other UK companies and the University of Oxford to ‘jointly develop and manufacture a Covid-19 Point of Care antibody test’. This means it has joined the UK Rapid Test Consortium formed by the government to develop a test that can see if someone has developed immunity after contracting coronavirus.

On 20 April, it said it began formalising a separate partnership to provide manufacturing capacity at its site in Cambridge for a Covid-19 diagnostics test developed by Mologic and part-funded by the government. ‘Once ready, the antibody test will be capable of playing a key part towards identifying people that have built up immunity to coronavirus,’ said Omega. Omega will produce ‘up to 46,000 Covid-19 tests per day’. The rapid progress being made has seen Omega shares jump by over 460% in just three weeks.

Byotrol

Byotrol trades through Medimark Scientific and produces biocides that are used in in a wide range of applications, such as cleaning, medical device disinfection and pet odour products.

Byotrol shares started to rise in January, partly as it offers several ‘products proven to be effective against coronavirus’, including a disinfectant cleaner and hand sanitiser. On 23 March, Byotrol said it had seen a ‘very substantial increase in demand for the full range of our infection prevention and control technologies over the last seven weeks’ as a result.

It said while it would usually expect to have an order book worth around £350,000 at this time of year, it had £2 million of orders. It said there had been some supply chain issues, but it still expects to report better than expected results for the year to the end of March 2020 – including positive Earnings before interest, tax, depreciation and amortisation (Ebitda).

‘We expect this to continue for at least the first quarter of [the] 2021 financial year and likely beyond, and are now expecting to benefit significantly from a secular shift towards the heightened importance of infection prevention, cleanliness and hygiene, whether personal, institutional or environmental,’ Byotrol said in a further update on 27 April.

Byotrol has seen sales soar amid the coronavirus crisis but believes it will be able to sustain the increased demand for its hygiene products over the long term, setting it on course for solid growth over the coming years.

Symphony Environmental Technologies

Symphony Environmental Technologies produces additives and materials that are used to improve plastic products, such as making them more environmentally friendly, flame retardant or biodegradable.

It is another small stock to have risen amid the coronavirus crisis. This is because it provides anti-microbial and protective products under its ‘designed 2 protect’ (d2p) range, and one of its products includes a disposable face mask.

Its d2p products recently received approval from the US Food & Drug Administration (FDA) to be used in break packaging. Symphony believes the risk of coronavirus lingering on plastic packaging will boost demand for its products, although it has to verify how effective it is against Covid-19. Quarterly revenue in the first three months of 2020 shot up 56% to £2.4 million.

‘It is clear that all plastic items which people touch, should where possible be made with anti-microbial additives such as the d2p technology developed by Symphony. These additives can be made lethal to bacteria and fungi for the lifetime of the product. Symphony has initiated tests by an independent laboratory to determine whether they are also effective against viruses, and tests will be run on the Covid-19 virus as soon as a specimen becomes available. However, it should be noted that until such tests have been completed and verified, there can be no guarantee that Symphony's d2p technology will be an effective barrier to the Covid-19 virus,’ it said on 10 March.

Symphony Environmental has warned the coronavirus makes it hard to provide an outlook and provides some economic uncertainty, but it is hoping to benefit more than most stocks and investors hope more progress will be reported in its annual results in May.

Sareum Holdings

Sareum Holdings discovers and develops drugs with a particular focus on cancer and autoimmune diseases. Its most advanced drug candidate, Chk1, targets cancer and is undergoing phase two clinical trials.

Sareum said it had remained ‘fully operational’ in an update in late March, despite the coronavirus outbreak. It had experienced ‘minor delays’. It also announced it had licenced out the rights to develop, manufacture and sell its lead candidate to a Chinese pharmaceutical company, pushing it toward commercialisation. It secured a £50,000 payment upfront and expects another £900,000 if it can achieve certain milestones over the next nine months. Considering it booked a £610,000 loss in the last six months of 2019 suggests that could be a game-changer for the business.

Mobile Streams

Mobile Streams helps distribute online content for other companies and harvests data and insight to help them understand their audiences better.

Mobile Streams is trying to bounce back after a rough ride. Shares were suspended from trading late last year after it failed to publish its annual results for the year to the end of June 2019 on time. This was lifted at the end of March when new management had got the company in order and published the annual results alongside the most recent interim results covering the last six months of 2019. Interim revenue was significantly down year-on-year and its pretax loss widened. At the same time, it raised £145,000 in a placing priced at the discounted price of 0.08p.

While shareholders have had a rough ride they are hoping the new board can propel Mobile Streams to new heights. They intend to develop the existing business while chasing an opportunity through its new data insight and intelligence platform named Streams.

‘The board believes that the new data offering is the largest opportunity for the company to deliver growth to shareholders via newly developed products, leveraging the years of data it has collected on consumer content purchases to drive a significant new revenue stream for the business.

The new platform will be launched in early April 2020 and the company will be updating its website in phases, phase one to start immediately, in order to reflect the evolving nature of the business, as the company grows and develops the product and sales pipeline,’ the company said on 30 March.

In addition, it said it had signed a data-sharing deal with the National Emergencies Trust for Streams to help the UK charity responsible for the collection and distribution of funds in response to the coronavirus pandemic in April.

Ukrproduct Group

Ukrproduct Group has two arms: one that produces dairy products like butter and cheese and another that produces beverages. The company’s core business is supplying these to wholesalers and retailers in Ukraine but it also exports intermediate-stage products, like milk powder, to Denmark, the Netherlands, Bulgaria, Japan and Turkey.

The company is among the smallest on this list and it is not the most liquid stock available, but this has not stopped its share price rallying by 64% since the start of the year. The only news it has released this year is its annual results for 2019, which showed a 35% rise in revenue to £50 million and a post-tax profit of £2.1 million compared to just £90,000 the year before.

Ukrproduct is clearly moving in the right direction but it has warned that the ‘negative impact that Covid-19 is likely to have on consumer spending and the group's performance is difficult to quantify and predict at this stage.’ This means its growth could be at risk of slowing down over the coming year depending how the virus impacts its markets, especially in Ukraine.

You can trade all of these UK penny stocks with IG. Simply open an account and search for the stock on our world-class platform.