Cheap penny shares plus rapid small-company growth equals huge profits, right? That’s what the hype generally suggests.

Enthusiasts look at big winners and think how rich they could be if only they can get in on one before everyone else. And let’s be honest, I bet most of us have thought that at some time.

Growth share investing can be a profitable strategy. Look at investors who did their careful research into Nvidia or Rolls-Royce Holdings and made big profits. I congratulate them for putting up their cash in the face of significant risk.

It’s not the price

But wait, those aren’t penny shares. And that’s a key point. Investing is about the company, not about the share price.

If company A has a share price of £10, with company B’s shares at 10p, which is better value? Starting at just 10p, a share must have far greater growth potential than one already up at £10, yes? That’s a big mistake that hopeful investors often make.

The truth is, it’s impossible to identify value from the share price alone. Company A could do a 10-for-one share split, and B could do a 1-for-10 consolidation… and each would then have a share price of £1. But there’s no change whatsoever to the growth potential for either company.

And most penny shares are down there because things went bad, not because they have great futures. Aston Martin, for example, is down at around 41p. The reason is very much not a good one.

Can we win?

Penny shares can also fall victims to fraud. With typically low trading volumes, they’re open to media hype, ‘pump-and-dump’ schemes, and all the rest. Any company with very cheap shares and a market cap under £100m is especially prone to such things.

So does this mean we should always avoid penny shares? No, not at all. As long as we concentrate on the company fundamentals and not the share price itself.

Oxford Metrics (LSE: OMG), for example, was recently highlighted by my Motley Fool colleague Edward Sheldon. Oxford Metrics does analytics for motion measurement and smart manufacturing.

Making profit

I haven’t done anywhere near enough research to make a decision for myself. And I’m always wary of a company valued at only a bit above £50m — especially after a five-year share price fall of almost 50%.

But I immediately like Oxford Metrics’ profit. The company recorded positive EBIT for 2025 — albeit adjusted. And forecasts have positive earnings per share on the cards, suggesting a price-to-earnings (P/E) of 22 in 2026, dropping to 18 by 2027.

Liquidity seems strong, and there’s even a dividend of around 6%. And it’s returned cash via a share buyback. It’s not an unprofitable jam-tomorrow growth hopeful.

Still risky

My main immediate concern is that earnings have been all over the place in the past few years. There’s no steady trend apparent yet, so I fear volatility ahead.

But when it comes to penny shares, this is the kind of company I think is worth further research — instead of those ones running only on dreams of future riches.