Two ASX Penny Stocks with Strong Q4 Momentum: Alfabs Australia (AAL) and HighCom Limited (HCL)

For investors seeking undervalued growth stories on the ASX, penny stocks often provide the thrill of discovery—small companies with strong catalysts, solid earnings momentum, and the potential to scale quickly. As 2025 draws to a close, Alfabs Australia Limited (ASX: AAL) and HighCom Limited (ASX: HCL) stand out as two small-cap names showing genuine strength heading into the fourth quarter.

Both companies have delivered encouraging results, sharpened their operations, and positioned themselves for continued growth into FY2026. Let’s explore why these two ASX penny stocks are drawing investor attention and why their Q4 momentum could translate into lasting gains.

Alfabs Australia (ASX: AAL) – Mining and Engineering Growth Engine

Alfabs Australia has quietly built a strong presence in mining services, engineering, and equipment hire—a business model that thrives in Australia’s resource-rich economy. The company’s latest financial results show that it’s not just surviving in a competitive sector—it’s accelerating.

FY2025 Highlights and Performance

1. EBITDA jumped 38% year-on-year to $26.4 million, underlining strong operational efficiency.
2. Net profit after tax (NPAT) surged 242% to $12.2 million, marking one of the best results in the company’s history.
3. Revenue reached approximately $95 million, showing stability despite industry headwinds.

A big part of Alfabs’ success has been its expanding underground mining equipment hire division, which began generating new streams of income in FY2025. The company delivered initial hire income from mining equipment sets deployed at the Malabar Mine, a significant growth project. Notably, only 44% of a full year’s hire income was recorded in FY2025—meaning the full benefit will likely be realized in FY2026, setting up the company for another profit boost.

Operational Expansion Driving Growth

Alfabs has also been investing heavily in infrastructure to support its growing business. With seven above-ground workshops and new facilities in Wollongong and Kurri Kurri, the company is increasing efficiency and service capacity across key mining regions.

This expanded footprint gives Alfabs a competitive edge—it can handle more contracts, respond faster to client needs, and scale its maintenance and fabrication operations effectively.

The company’s diversified service base, covering everything from engineering and fabrication to hire and repair services, ensures resilience against sector swings. Combined with its strong cash flow and disciplined execution, Alfabs is shaping up as one of the more sustainable growth stories among ASX penny stocks.

HighCom Limited (ASX: HCL) – Strategic Turnaround in High-Tech Manufacturing

HighCom Limited is another penny stock that has caught the eye of investors in 2025, thanks to its strategic turnaround and growing traction in defense and security markets.

The company specializes in ballistic protection and advanced defense systems, operating across two key segments: Armor and Technology. After a challenging few years, HighCom’s FY2025 performance reflects a company that is regaining momentum through operational discipline and innovation.

FY2025 Key Numbers

1. Revenue: $48.1 million — up 6% year-on-year.
2. Armor division: $35 million revenue at 21% gross margin.
3. Technology division: $13 million revenue at 28% margin.
4. Operating expenses reduced by $2.7 million, improving overall profitability trajectory.
5. Inventory levels optimized from $17 million to $14 million, strengthening cash flow.

While HighCom still reported a small net loss, the narrowing deficit and healthier balance sheet signal meaningful progress. The company is clearly moving in the right direction.

Innovation and Expansion Fueling the Turnaround

A standout development for HighCom has been the recommissioning of its XTclave system in Ohio, USA—a major step that effectively doubles production capacity. The XTclave system, used to manufacture lightweight, high-strength armor, gives HighCom a technological advantage in the defense and protective equipment markets.

Moreover, the company is preparing to launch 10 new products across its Armor and Technology divisions—expected to drive revenue diversification and margin recovery in FY2026.

It’s worth noting that gross margins fell from 30% to 23% in FY2025 due to discounted sales and weaker US demand. However, management’s efforts to improve efficiency, streamline inventory, and expand product offerings indicate that margins could rebound as market conditions normalize.

With strong momentum, expanding contracts, and a leaner cost structure, HighCom looks poised to continue its turnaround story through the final quarter of 2025 and beyond.

Why These Stocks Matter for Q4 2025

As investors weigh opportunities amid market uncertainty, momentum, profitability, and operational execution matter more than ever—qualities both Alfabs and HighCom are demonstrating.

Here’s why these two penny stocks are worth watching:

1. Strong Financial Momentum

1. Alfabs is showing exceptional profit growth and expanding into new mining markets, setting up for higher recurring income in FY2026.
2. HighCom is executing a clean turnaround—revenues are rising, expenses are falling, and production capacity is scaling efficiently.

2. Strategic Growth Catalysts

1. Alfabs’ new mine contracts and expanded workshop network will likely lift its revenue base further.
2. HighCom’s XTclave expansion, product innovation, and cost optimization are creating a foundation for long-term growth.

3. Improving Market Sentiment

1. Investor confidence in small caps is recovering as macro pressures ease and commodity demand stabilizes.
2. Both companies operate in sectors—resources and defense—that benefit from steady demand even during uncertain times.

4. Undervalued Relative to Fundamentals

1. Despite strong financial and operational progress, both stocks remain in the penny category, meaning they trade at relatively low valuations.
2. With improving earnings visibility and upcoming catalysts, these companies could be ripe for re-rating in the quarters ahead.

The Bottom Line: Two Small Caps with Big Potential

Alfabs Australia (AAL) and HighCom Limited (HCL) may not yet be household names, but their stories are increasingly compelling. Alfabs is executing on a clear path to higher profitability through its mining services expansion, while HighCom is redefining itself as a lean, tech-driven defense manufacturer with global ambitions.

Both companies are entering Q4 2025 with operational strength, improving margins, and clear catalysts for future growth. For investors with an appetite for calculated risk and a focus on momentum-driven small caps, AAL and HCL represent two ASX penny stocks with genuine upside potential.

As the year winds down, these under-the-radar performers could continue to gain traction—and for investors tuned in early, the fourth quarter might just bring the next leg of their growth story.

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