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Market volatility has increased significantly in recent weeks and we have seen many penny stocks improve. There is one name that caught my eye as it has increased by 25% since the beginning of the year.
Pharos Energy (LSE: PHAR) shares are currently charged. I wanted to know if there was more to this little-known powerhouse with a £106m market cap than meets the eye.
A red-hot penny stock
The company is a small oil and gas producer with assets in Vietnam and Egypt, where its strategy is focused on squeezing more value out of existing fields.
In a market that can fluctuate wildly in oil prices and headlines, its fortunes often move with both performance reviews and the broader energy situation.
The company’s share price is up 25% in 2026 to 25.4p as I write on 23 March despite falling 8% on Monday morning.
What is happening in the energy sector?
The war in Iran has disrupted energy supply lines around the world, with repeated warnings about the continuing impact on the situation in the Strait of Hormuz.
The International Energy Agency even called this conflict the biggest threat ever to global energy “in history”. Many analysts are giving high prices for crude oil, while oil and gas stocks are favorable BP they came to heaven.
The company’s production assets are in Vietnam and Egypt, so it does not drill in the Gulf. But high valuations can still mean strong cash flow, which can turn a penny stock like Pharos around quickly.
More than meets the eye?
That brings me to the company itself, which is important when the current headlines are over.
In December, Pharos said it was running a fully funded six-well drilling and scale drilling program in Vietnam. Management called it the most significant investment in those assets since the original development.
It also said that the initial performance of the first Te Giac Trang (TGT) was ahead of expectations before drilling. Know that it is debt free and has around $16.6m in cash and it is easy to see why its valuation is rising.
Measurement
After a stellar run of late, this red-hot penny stock isn’t cheap. The company’s shares trade at a price-to-earnings (P/E) ratio of about 31 with a dividend yield of 4.5%.
That sounds like a challenge for a small company in a notoriously cyclical sector. However, if oil prices remain high, the company’s potential profits could help support that strong yield.
That said, it pays to be cautious, especially in these uncertain times.
Small producers can see their fortunes change rapidly with oil prices, and current price action is heavily tied to global shocks. If the war premium falls quickly, I wouldn’t be surprised to see a share price correction or crash.
The key to take
The Iran war has created interest in anything connected to oil as investors brace for a possible economic collapse.
Pharos has been the gainer as a micro-cap stock that has shown recent signs of promise. However, the biggest risks always include potential asset price declines or operational headaches.
That said, the company’s excellent Vietnamese mining program means it’s more than just playing the title. I think the release of the company’s first results on Wednesday will be something to watch for investors interested in the energy sector.
