Penny stocks may come with higher risk, but they also offer the chance for big rewards—especially when you’re early to spot a winner. On the ASX, some small cap stocks are working on exciting projects and innovative ideas that could fuel rapid growth. These penny shares, often trading under $1, provide an entry point for investors looking to back early-stage companies with strong potential.
In this blog, we’ll highlight a few names that have recently shown strong momentum or possess a compelling growth strategy. These best penny stocks ASX are not only trading at affordable valuations but also delivering meaningful results—making them ones to watch.

1. Step One Clothing Limited (ASX: STP)

Category: E-commerce | Apparel | ESG Focus
Step One Clothing Ltd. is a direct-to-consumer online retailer that specializes in eco-friendly and comfortable underwear. Known for its sustainable production and ethical sourcing, the brand resonates well with environmentally conscious buyers. Its product lineup includes boxers, briefs, camisoles, and lingerie—all made with bamboo-derived materials that reduce environmental impact.
The company’s online-only model allows it to maintain strong gross margins by cutting out middlemen and controlling the customer experience directly. With growing demand for sustainable apparel, Step One has been steadily gaining traction not only in Australia but also in international markets like the US and UK.
Recent Performance:
Revenue (H1 FY25): $48.1 million, up 6.8% YoY
Net income: $8.18 million, up 15% YoY
Growth Strategy: Global expansion, online scaling, and product category diversification
Step One’s emphasis on digital engagement, sustainable production, and high repeat customer rate positions it among the best penny stocks ASX investors should be monitoring. The brand’s transformation into a global player over the past five years highlights its long-term growth potential.

2. COSOL Limited (ASX: COS)

Category: IT Services | Enterprise Software | Mining Tech
COSOL Limited is a technology solutions provider focused on asset-intensive industries like mining, energy, and infrastructure. The company provides Enterprise Asset Management (EAM) and data transformation services using proprietary platforms such as OnPlan and RPConnect.
Its client base spans across Asia Pacific, North America, Europe, and the Middle East, with recent wins including Horizon Power and the Department of Defence. COSOL is not just riding the digital transformation wave—it’s building it. Through smart acquisitions like Toustone (AI and analytics), it’s rapidly scaling capabilities in AI-enabled asset management.
Recent Performance:
Revenue (H1 FY25): $57.8 million, up 17.8% YoY
EBITDA: $7.65 million, up 17.6% YoY
Key Drivers: Tech integration, recurring revenue from AMaaS (Asset Management as a Service), and strategic acquisitions
With a robust global delivery model and a strategy focused on innovation and scalability, COSOL is an excellent example of cheap ASX stocks with sophisticated offerings and sticky customers. As digital infrastructure spending grows, COSOL is well-positioned to ride the tailwinds.

3. Nido Education Limited (ASX: NDO)

Category: Childcare | Early Education | Real Asset-Backed Growth
Nido Education Ltd. operates premium early learning centres for children aged six weeks to school age. It has created a defensible and scalable model in a sector known for both opportunity and volatility.
Rather than acquiring childcare centres directly, Nido uses an incubation strategy: third-party incubators fund and manage new centres until they meet performance targets like 80% occupancy. This lowers capital risk and ensures predictable returns. Once benchmarks are met, Nido acquires the centres under long-term lease agreements (30+ years), ensuring operational stability.
Recent Performance:
Revenue (FY24): $163.63 million, up 75% YoY
Operating cash flow: $28.50 million (highest ever)
Dividend: $0.06 per share
Growth Engine: 13 centres in incubation pipeline
In an industry marked by consolidation and compliance complexity, Nido stands out for its asset-light model and operational prudence. It also offers a dividend, adding value for long-term investors. Among the penny shares on the ASX, Nido presents a compelling mix of growth, income, and smart capital allocation.

Why Consider Penny Stocks in 2025?

Despite being classified as high risk stocks, penny stocks often outperform in bullish markets. Investors seeking high-growth opportunities at lower price points can find some real diamonds in the rough. These companies tend to operate in niche sectors, test innovative models, or expand aggressively—traits that can lead to explosive upside.
The Australian economy’s rebound, tech innovation, sustainability trends, and childcare demand are all macro tailwinds supporting the cases for the three companies mentioned above. Whether it’s sustainable fashion, digital transformation, or smart education infrastructure, these small cap stocks are tackling meaningful problems.

Risks to Keep in Mind
While the upside potential is significant, cheap ASX stocks can be volatile. Thin trading volumes, uncertain earnings paths, and external market shocks can influence their trajectory. It’s essential to perform due diligence, understand the company’s core business, and track management’s execution ability.
Diversifying your exposure and pairing penny stock investments with a well-rounded portfolio can help manage overall risk.

Conclusion

For those willing to accept a higher degree of risk in exchange for potentially greater returns, these three best penny stocks ASX offer compelling value and growth stories in 2025. From ethical underwear to asset intelligence and innovative childcare models, these companies are small in size but big in ambition.
Penny stocks may not be for everyone—but for the bold investor with a sharp eye for disruption and resilience, they could be the most exciting corner of the ASX share market this year.
Whether you’re just exploring the world of penny shares or you’re looking to add some spark to your watchlist, STP, COS, and NDO deserve a spot in your research folder. Keep an eye on them—they might just be the breakout stars of 2025.

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