While most investors keep a close eye on the FTSE 100, some overlooked penny stocks are quietly having an even better year.

So far in 2025, the Footise’s been fairly steady, led by familiar heavyweights. Rolls-Royce shares are up an impressive 66%, with only Babcock and Fresnillo ahead among the blue-chips. But dig beneath the surface and there are some tiny UK shares doing even better — and crucially, with more than just a speculative bounce behind them.

Many small-cap stocks racing ahead this year have shaky profits and stretched valuations. However, I’ve found two penny stocks that not only boast strong share price gains but also seem to be trading on reasonable fundamentals.

Staffline Group

Staffline Group‘s (LSE: STAF) a small recruitment firm that supplies workforces to major UK retailers such as Tesco and Morrisons. Given its ties to defensive consumer staples, it’s perhaps no surprise that demand has remained stable.

In May, management reaffirmed it’s confident full-year 2025 results will meet expectations. Investors clearly took notice. The share price has rocketed 102% year-to-date, comfortably leaving Rolls-Royce in the dust.

But this isn’t just a hype story. Under the bonnet, things look reasonably solid. Diluted earnings have grown 20% year on year, while revenue’s up nearly 6% to £993m. Profitability’s still tight — the operating margin’s only 1%, with return on capital employed (ROCE) at 8%.

On valuation, the stock doesn’t look overly stretched, trading at a forward price-to-earnings (P/E) ratio of 13.

However, there are some risks. In particular, recent UK budget changes have increased National Insurance obligations for businesses. These costs could squeeze margins, and in a downturn, big employers might trim staff, hitting Staffline’s core business hard.

SDI Group

SDI Group‘s (LSE: SDI) another under-the-radar winner, up 66% so far this year, roughly matching Rolls-Royce’s gain. The company makes specialist industrial and scientific sensors and laboratory equipment — hardly glamorous, but clearly in demand.

In June, it acquired Severn Thermal Solutions for £4.8m, a move expected to bolster earnings. Profitability looks more than sufficient for a micro-cap, with an operating margin of 11.4% and return on equity (ROE) of 7.7%.

It trades at a forward P/E ratio of 15.3, which seems fair given the growth story, although the price-to-book (P/B) ratio of 2.13 is a touch high. Encouragingly, the balance sheet looks healthy, with debt well-covered by earnings and cash flow.

Still, there are some clear risks. Small firms like SDI often have limited analyst coverage, volatile trading patterns, and depend on relatively narrow customer bases. A single contract loss could materially dent profits.

Digging out gems

I’m a fan of blue-chips, but at times it can pay to look past the headlines — often, the real gems hide where few bother to look. While penny stocks are always risky, these two seem to have some real substance behind the soaring share prices. 

Staffline’s rebuilding steadily, while SDI continues to expand its product reach and tuck-in acquisitions. For adventurous investors looking to diversify into promising penny stocks, I think both are worth considering.