Many penny stocks are in undiscovered companies that most people have never heard of. But not all. Take Group I (LSE: MEGP) as an example. Four years ago, the company was trading heavily in the penny stock space. It has since more than quadrupled, driven by solid earnings and cash flow.

While you may have never heard of this company, there’s a good chance you’ve seen (or even used) one of its thousands of photo machines in supermarkets, shopping malls and other places, or one of its RevolutIon companies washing machines.

Attractive business model

It’s a lucrative business. The company operates in areas of high demand. Even during the worst of the pandemic, when ME Group traded as a penny stock, revenues fell but didn’t collapse.

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In terms of profitability, profits have changed.

Even before the pandemic, earnings per share were down – and would be hit tough for the next few years, which helped explain why ME was trading as a penny stock.

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But as the chart above shows, they are now stronger than ever. I think this speaks to the attractiveness of the ME business model: an automated network of machines means labor costs can be kept low and demand for the services it offers tends to be high. If people have to do laundry, they have to do it.

Appraisal can provide long-term value

However, a good business does not necessarily mean a good investment. Valuation also matters.

I think ME Group is doing quite well on this front. Looking at its current price-to-earnings ratio of 13, I believe it offers the potential for long-term appreciation if earnings per share continue to grow in the future.

In addition, the dividend yield of 4.3% seems attractive to me.

I think the company’s unique machinery and years of experience in vending machines facilitate it stand out from the competition. But there are risks. As we saw during the pandemic, any drop in the number of people visiting shopping centers can lead to a piercing drop in demand.

Buy or wait?

Could ME Group, which has been a penny stock for the last four years, return to this trend soon?

Of course, anything is possible in the markets, but at least for now, I think the company’s robust business performance will likely keep its stock price high. The lack of competition in many areas gives it pricing power, which I think could mean even higher profits in the future.

So, even though it no longer offers as much value as penny stocks, if I had spare cash to invest today, I would happily add ME Group to my portfolio.