Say you have 2,000 in your pocket now and you are going to speculate that one penny stock not only will double in value over time, but could even deliver absolute pre-tax returns north of 1,000% what should you do next?
Dreamland?
Castleton Technology (LSE: CTE) is less likely to deliver that kind of performance than Churchill Mining (LSE: CHL),in my view, butits stock price could surely double, although a rally from 3p to 6p would put its valuation inthe danger zone, based on fundamentals.
I would probably stick withSirius Minerals(LSE: SXX) at 18pa share if I were to bet on any companyworth less than 500m right now.The downside, of course, is that you may end up being disappointed at the end of the process, particularly if you choseChurchill.
Intangibles
Castletons stock price ranged between 0.92p and 3.61p over the last 52 weeks, and its stock currently trades at 3p (+42% year to date), which implies a market cap of 45m.
Last week it reported a trading updateforthe year ended 31 March, which showed revenue at 6m and widening economic losses due to one-off charges. The market is pleased with its aggressive strategy Castleton is mopping up assets but the value of intangibles on its balance sheet is significant (at 73% of its total assets), while its stock is very expensive based on its price-to-tangible book value.
Formerly Redstone, this software support services group could be a decent bet, but Id not underestimate the risks associated to its strategy. Furthermore, stiff competition in the sector could limit short-term upside.
Arbitration
We know that Churchills equity value hinges on the outcome oftheinternational arbitration cases that Churchill and itsAustralian subsidiary Planet Mining are pursuingagainst the Republic of Indonesia.The arbitration arises from the unlawful revocation of the mining licenses relating to the East Kutai Coal Project in East Kalimantan, in which Churchill and Planet held a 75% interest, Churchill insistedin its latest update.Its stock has halved since a record high in June, and its market cap now stands at 34m.
Churchill estimates that the damage can be quantified at about$1.3bn; consider that capital appreciation in the region of 1,000% from its current stock price of about 22p would yield a market cap of 320, or about $500m. Thats less than 50% of the value that Churchill claims it could fetch!
That said, the government of Indonesia is well known in the international community for playing hard ball in these situations,and I am not sure that we might still have an investment case if it simply decided not to pay or if proceeds were much lower than expected.
Financing
Sirius is fairly priced right now, at least based on several elements that can hardly be quantified!
The biggest eventthat should emerge over the next six months should be the arrangement of a comprehensive financing package backing the development of its flagship York Potash project in York.
There has not been big news to report recently, but latest signs are encouragingand point to an investment that could be properly priced right now and one that could still be a bargain at over 40p a share if all pieces of its York project fall into place.
That said, if you want to play it safe and determine whether there is any value in Sirius, Churchill andCastleton as well as in the shares of several bigger companies, I invite you to read carefully all therecommendations that have been made by our team of analysts at the Motley Fool.
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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.