2 Penny Stocks to Buy Before Their Earnings

Penny stocks are often the hidden corners of the stock market — full of risk, but also brimming with potential. For investors who can handle short-term volatility, the right small-cap stocks can deliver remarkable long-term returns, especially when bought ahead of a strong earnings season.

Two such ASX-listed penny stocks that are gaining investor attention before their upcoming earnings are Alfabs Australia Ltd (ASX: AAL) and HighCom Ltd (ASX: HCL). Both operate in very different industries — one serving the heavy mining sector and the other supplying defence technology — but each offers a distinct story of improving fundamentals and potential re-ratings ahead.

Let’s dive into what’s making these two names worth watching right now.

1. Alfabs Australia Ltd (ASX: AAL) — A Mining & Industrial Services Player Gaining Traction

What the Company Does

Alfabs Australia is a diversified industrial services group headquartered in Newcastle, New South Wales. The company specialises in equipment hire, steel fabrication, mining maintenance, transport, protective coatings, and engineering support. Essentially, Alfabs provides the behind-the-scenes muscle that keeps Australia’s mining, energy, and infrastructure projects running smoothly.

Latest Financial Performance

For the financial year ended 30 June 2025, Alfabs delivered:

Revenue: ~$95 million

Net Profit After Tax (NPAT): Around $12.2 million

Dividend per share: $0.02 (Dividend yield: ~6.67%)

That’s a notable result for a company still classified as a penny stock. What’s particularly interesting is that profits grew meaningfully despite flat revenues, suggesting that management executed well on cost controls and higher-margin contracts.

Why Investors Are Watching Before Earnings

Alfabs’ story has started to shift from a traditional low-margin industrial firm to a company showing clear signs of operational leverage. A few key reasons have investors keeping this one on their radar:

1. Margin Expansion Potential — The profit growth in FY25 indicates improved efficiency and disciplined cost management. If this trend continues into FY26, Alfabs could surprise on the upside.
2. Transition to Cash-Generative Business — Consistent dividends and a stronger profit base show that Alfabs may be entering a more stable, cash-positive phase — a sign of maturity for any small-cap stock.
3. Sector Tailwinds — The mining and industrial services sectors remain supported by ongoing infrastructure and resources investment. As major miners ramp up maintenance and equipment upgrades, Alfabs stands to benefit.
4. Low Market Expectations — With limited analyst coverage, any positive surprise in upcoming results could trigger outsized moves in the share price.

Bottom Line on Alfabs

Alfabs looks like a small-cap quietly executing on its turnaround. With a consistent dividend, improving profitability, and exposure to essential industrial services, AAL could be one to watch closely as earnings season approaches. If management can demonstrate another quarter of operational strength, the market may finally start taking this name more seriously.

2. HighCom Ltd (ASX: HCL) — Defence Technology with Turnaround Potential

What the Company Does

HighCom Ltd operates in the defence, security, and protective technology sector — a space that’s gaining momentum globally amid heightened geopolitical risks and rising defence budgets.

The company provides ballistic armour, tactical gear, forensics tools, and security technology for military, law enforcement, and commercial clients. Its operations are divided into two key divisions:

1. HighCom Armor — protective and ballistic equipment manufacturing.
2. HighCom Technology — security, surveillance, and forensic systems.

This diversification gives the company exposure to both product manufacturing and high-tech service solutions.

Financial Highlights

For FY2025 (ended June 2025):

1. Revenue: $48.11 million
2. Net Loss After Tax: Approximately $1.19 million, narrowing by nearly 90% year-over-year.

The most encouraging sign? The business is approaching profitability after significant cost restructuring and operational improvements. Analysts following the stock believe that if contract wins continue and product demand grows, HCL could swing into profit within the next 12 months.

Why Investors Are Watching Before Earnings

HighCom’s setup heading into earnings season is a classic small-cap turnaround case. Here’s what’s attracting investor attention:

1. Major Cost Reductions Paying Off — The sharp reduction in losses shows that management’s efficiency drive is working. Investors will be looking for confirmation that margins are improving and that the company is on track to profitability.
2. Niche Exposure to Defence and Security — The company’s specialised product range — including armour plates, helmets, and ballistic protection — is in demand globally. Increased government spending on defence and security could be a major tailwind.
3. New Contracts and Product Launches — HCL has hinted at upcoming contract announcements and potential export growth, which could provide fresh catalysts in its next earnings report.
4. Low Valuation Base — As a penny stock, even modest earnings improvements can lead to significant percentage gains if the market starts to price in future profitability.

Bottom Line on HighCom

HighCom offers a speculative but potentially rewarding opportunity. With losses narrowing, cost structures improving, and defence spending trends moving in its favour, HCL’s next earnings could be a pivotal moment. A small earnings surprise could spark renewed market confidence.

Balancing Risk and Reward

Both Alfabs Australia (AAL) and HighCom Ltd (HCL) sit firmly in the high-risk, high-reward corner of the ASX. But what sets them apart from typical penny stocks is their improving fundamentals and strategic positioning heading into earnings season.

AAL provides exposure to Australia’s industrial and mining backbone, offering steady cash flow and dividends.

HCL gives investors a chance to tap into defence and security technology with turnaround potential.

For aggressive investors with a tolerance for volatility, these two stocks represent compelling opportunities ahead of earnings season. As always, due diligence is key — but in the world of small caps, the right timing can make all the difference.

Disclaimer:

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