A penny inventory will be outlined as an organization with a market-cap beneath £100m and a share price beneath £1. There are many shares that match this invoice, nevertheless it doesn’t imply all are undervalued gems that would make an investor wealthy.

After some cautious research, I believe I’ve discovered one which may very well be price consideration.

Particulars of the enterprise

I’m speaking about 1Spatial (LSE:SPA). With a market-cap of £74m and a share price of 66p, it definitely ticks the containers. Over the previous yr the inventory’s up 41%.

The enterprise is a UK-based expertise firm specialising in Location Grasp Knowledge Administration (LMDM) software program and options. It’d sound complicated, nevertheless it mainly helps organisations guarantee knowledge accuracy. The software program that 1Spatial sells helps to validate and handle location-based knowledge. The phrase spatial refers to occupying area, therefore the enterprise title.

Naturally, the scope of operations lends itself to creating use of synthetic intelligence (AI). One of many good methods already getting used is taking a picture of a spot and turning that into location knowledge. This cuts out the guide human course of and in principle will enable the info to be extra correct with out human error.

AI fashions may also course of structured location knowledge to carry out analytics in a a lot faster manner than people can. That is one thing that may assist 1Spatial to change into extra environment friendly in operations, but additionally to maintain prices down.

Why I consider it may do effectively

I believe buyers ought to think about proudly owning the inventory primarily based not simply on the AI capabilities but additionally the current contracts which have been gained. In September it obtained the renewal of a multi-year cope with the Nationwide Public Authority in France. That is valued at £1.26m over 4 years.

Throughout November the agency introduced a five-year cope with the Division of Agriculture within the US, price £1.11m. In each of those offers, it offers strong future reoccurring income, which may be very interesting for buyers.

If the corporate can preserve following this enterprise mannequin with extra contacts coming by way of, it may simply scale at a really quick tempo subsequent yr. Given the enhance to income and profitability that these present, I’d count on to see the share price extra materially larger because of this.

Dangers to notice

Some flag up the big contracts as a possible danger. 1Spatial has a small variety of shoppers, primarily based with high-value key contracts. If it doesn’t get one renewed, it may have an enormous unfavorable influence on funds. That is true, however I really feel that because the enterprise grows and takes on extra shoppers, this danger will be diversified.

As small corporations, penny shares like 1Spatial additionally carry a better degree of danger generally. But I really feel the potential reward right here’s excessive. Due to this fact, I really feel it’s price contemplating for an current diversified portfolio in search of development.