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Penny stocks are notorious for being volatile investments. As such, seeing double-digit share price crashes among these tiny enterprises, while frustrating, is to be expected. But in some instances, this short-term panic selling can create long-term buying opportunities. That’s if the underlying business can recover from whatever triggered the crash.
In 2025, one of the worst-performing UK shares has, so far, been Severfield (LSE:SFR). Since the start of the year, the stock’s fallen by almost 40%. And anyone who was unlucky enough to buy shares in November 2024 has seen their investment dip by over 60%.
Needless to say, that’s a painful loss. So what’s behind the collapse of its market-cap? And has this created a rare buying opportunity for long-term-thinking investors?
Investigating the problems
As usual, there are a lot of factors behind Severfield’s tumble into penny stock territory. However, the catalysts essentially boil down to a combination of operational, financial, and external challenges. They translated into multiple profit warnings.
Adverse market conditions created numerous contract delays that pushed a good chunk of revenue into its 2026 fiscal year. At the same time, competitive pricing from within the construction industry has resulted in persistent pressures on margins. So much so that its share buyback scheme was ultimately cancelled as pre-tax profits were halved and the net bottom line fell into the red.
Multiple rounds of guidance downgrades, the fall into unprofitability, and ongoing uncertainty of revenue timing have soured investor sentiment. With that in mind, it’s not surprising to see investors jump ship, causing the Severfield share price to crash.
Time to consider buying?
Following its latest results, the near-term outlook continues to look bleak, with dividends also recently suspended, sending shares tumbling even further. However, there’s some room for optimism.
The group’s UK & European order book has started to climb again, reaching £444m as of July, £324m of which is due within the next 12 months. This visibility provides some confidence that the company will be able to deliver on its renewed 2026 outlook.
At the same time, ramping demand, particularly from data centres and major London commercial developments, provides a nice long-term tailwind for Severfield’s steelworks business. And with cost disciplines being introduced today, the company appears to be repositioning itself for a recovery in the coming years.
After all, despite the financial pressures, its balance sheet’s net debt position, while on the rise, isn’t as bad as many analysts were projecting. And with the stock trading at a tiny price-to-book ratio of 0.5, even a modest improvement in margins or cash flow could trigger a rebound that pushes Severfield back out of penny stock territory.
The bottom line
So should investors be considering this business for their portfolios?
If management’s successful in stabilising the business and steel demand rebounds, Severfield could be a promising recovery play. But even if market conditions improve (which isn’t guaranteed), this still comes with significant execution risk. And recently, the group’s track record hasn’t been terrific.
Overall, like many penny stocks, Severfield’s definitely a high-risk, high-reward opportunity. It’s not one I’m keen on pursuing, but for investors with a greater risk tolerance, this may be a stock worth investigating further.
