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A hidden ex-penny stock to buy for the electric vehicle revolution

Electric cars charging in station

With electric vehicle (EV) stocks like Tesla constantly stealing the limelight, it’s easy to forget hundreds of businesses are working behind the scenes. And while there are plenty of penny stocks looking to capitalise on this space, one company in particular has caught my attention.

Mostly because it’s grown so much in the last few years, it’s no longer in penny stock territory, with the market-cap now sitting comfortably above £100m.

Supplying critical electronics

The company in question is Solid State (LSE:SOLI). It designs and manufactures electronic components needed for larger systems across various industries, including the automotive sector. And following a series of strategic acquisitions, its reach has begun to extend to enterprise-level customers.

Looking at its latest results, increased demand from the EV and defence sectors has enabled revenues to jump by 48% from £85m to £126.5m between March 2022 and 2023. Meanwhile, operating profit margins have been busy expanding, allowing for underlying earnings to grow from £3.7m to £9.4m over the same period.

Needless to say, this performance certainly suggests management is capitalising well on industry trends. And with a seemingly robust balance sheet, there doesn’t appear to be any immediate solvency or liquidity issues either.

In other words, financially speaking, this ex-penny stock appears to be perfectly positioned to continue thriving. Even more so, considering the order book has another £116.2m worth of contracts in the works versus £89.7m a year ago.

Ex-penny stocks can still be risky

Even though shares of Solid State are up nearly 30% since April, the stock has been through multiple bouts of volatility. For example, between January and March this year, shares dropped by 25%.

During the short term, volatility, especially among smaller businesses, is to be expected. But seeing swings of this magnitude highlights that there remains some significant uncertainty about the long-term potential of this business.

After all, Solid State is by no means the only company operating in this space. And many of its competitors have significantly more financial resources at their disposal to pursue new opportunities.

The group’s small size could also be a disadvantage when seeking priority to source raw materials. Supply chain disruptions continue to wreak havoc within this sector. And if suppliers decide to prioritise larger customers, Solid State’s order fulfilment could slow considerably, causing customers to potentially jump ship.

The bottom line

Nothing is ever guaranteed in the world of investing. That’s especially true when venturing towards penny stock territory. But Solid State looks like an excellent business starting to ramp up operations, in my opinion.

And providing management can continue to capture more market share, the long-term potential seems immense, not just in EVs, but in 5G, IoT, healthcare, and other rising sectors.

Therefore, despite the risk, I think this stock could make an excellent, albeit small, position within my investment portfolio. And that’s why I’m considering snatching up some shares once I have more capital at hand.

The post A hidden ex-penny stock to buy for the electric vehicle revolution appeared first on The Motley Fool UK.

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Solid State Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.