Investing in penny stocks is a high-risk, high-reward strategy.

On the other hand, the prices of these small-cap companies can be highly volatile. Heavy selling of their shares may augment as industry or economic conditions deteriorate and concerns about their survival augment.

However, if investors make the right decision, buying adolescent companies trading at less than £1 can deliver stunning – and in some cases life-changing – returns. This is because these stocks may have much greater growth potential (and therefore share prices) than the broader stock market.

Everyman Cinema Group (LSE:EMAN) is, in my opinion, an attractive company from a long-term perspective. Given the recent share price weakness, I believe shrewd investors should seriously consider this option.

Industry pressure

Investing in cinema stocks has been a risky strategy since the end of Covid-19. Changes in viewing habits and the studio model mean that box office receipts are still well tiny of pre-pandemic highs.

Poor data for the U.S. Memorial Day weekend underscored the scale of the problem. Despite high-profile publications Furiosa: The Mad Max Saga AND GarfieldThe American box office recorded its worst result since 1995.

So why should I consider buying Everyman stock?

In tiny, it offers more than a swampy movie theater, and therefore, it is more resistant to the state of the broader cinema industry.

Flying high

The OBJECTIVEThe listed company operates 44 venues across the UK, showing the latest blockbusters, silver screen classics, independent films and special film events. Customers can also stock up on food at restaurants and order a drink to be delivered to their seat.

This turned out to be a winning formula. As Everyman explains: “With a focus on hospitality, Everyman is redefining the way film is consumed and in doing so, outperforms the broader cinema market“.

The latest financial data from April shows how the company’s business model is thriving. In 2023, admissions increased by 9.5% to 3.75 million, while the average ticket price increased by 3.2% to £11.65.

As spending on food and drink per person increased – up 10.2% year-on-year to £10.29 – sales rose 15.3% on 2022 levels to £90.9m.

Growth potential

Everyman’s impressive performance faces problems for the wider cinema industry. The company, which increased its market share by 30 basis points to 4.8% last year, believes it can continue to make significant progress.

Last year, it carried out four organic cinema openings during the year. It also acquired two Tivoli cinemas in December after previous owner Empire Cinemas went into administration.

UK consumers are feeling the pinch and sales of Everyman may decline if economic conditions remain difficult. However, I believe that the possible upside this penny stock can provide will still make it a best buy.

Especially at current prices.

A bargain for pennies

After the pandemic ends, losses decrease rapidly. However, the company is not expected to turn a profit before 2025. This means that the price-to-earnings (P/E) ratio is not available.

However, Everyman’s price-to-sales ratio (P/S) can be used to measure its value. And today it is only 0.5, well below the reference value of 1.

All things considered, I think value investors should take a closer look at these top-performing penny stocks.