Penny stocks have the potential to provide investors with significant capital appreciation. However, there is also a risk that the compact company will never get off the ground or even go bankrupt. Therefore, it is really critical to choose companies in which to invest. After reading analysts’ opinions, one stock caught my attention.

Attractive business model

I’m talking about Game lands (LSE:GMR). The current share price is 31p, but analysts are positive about the company. Based on the three rated analysts, all are forecasting robust earnings in the coming year. Peel Hunt has a top price target of 60p, with Investec lowest at 56p. Theoretically, if the shares actually hit 60p, it would almost double the investor’s money based on the current price.

One reason for this prospect is its highly scalable, high-margin business model. Gaming Realms is a gaming content creator and third-party licensor. He creates games and then sells them. This means that once the game is created, each recent partner adds recurring revenue with minimal additional costs.

This bodes well for the coming year, as North America is currently the largest market. Full-year results are expected to be released soon, but the latest annual financial reports showed that this geographic area accounts for 54% of content licensing revenues. I expect this number has increased and will continue to boost due to the fact that more and more US states are likely to legalize online gambling.

Jump to consider purchase

Some will look at the stock’s 17% decline over the last year and be concerned. This is mainly due to recent gambling stake limits in the UK, which have negatively impacted licensing revenues in this market. In September, half-year results showed total revenues were up 18%, but the UK market was down 13%.

Of course, this remains a risk in the future, but I believe that further international expansion will assist offset these risks. In fact, the UK may account for a relatively compact part of the group’s revenues in the coming years. This is especially true if the planned attack on Brazil and British Columbia is successful.

As a result, some may see a good opportunity to buy shares at a low price right now. The price-to-earnings ratio (P/E) is 10.37. Compare this to the company’s average P/E ratio FTSE100 at 18, this could be used to suggest the stock is undervalued.

As with any penny stock, be careful. Fluctuating stock price movements make it arduous to control your emotions. However, with a market capitalization of just £88m, Gaming Realms could grow significantly without being overly valued if its overseas expansion starts to deliver financial results.

I will not buy shares solely for ethical reasons, because I do not want to hold companies associated with gambling. However, if investors don’t have the same concerns, this stock may be worth considering.