I continue to see potentially lucrative opportunities in the penny stock and small-cap space. Most of these shares have been hammered since interest rates surged higher in 2022.
That’s understandable because higher rates increase borrowing costs and raise the risk of smaller enterprises going under. However, I think there’s been an overreaction in some cases.
One is Creo Medical (LSE: CREO). Despite trading at 28.5p, I call it a former penny stock as its £103m market-cap just edges above the £100m threshold typically used to classify such shares.
According to broker Deutsche Bank, it has the potential to surge 171% to 80p. Meanwhile, Cavendish Capital Markets analyst Chris Donnellan has a 99p price objective for the stock.
Of course, there’s no guarantee it will ever reach 99p (or even 30p). But if it does, that’s a whopping 235% above the current price!
Innovative devices
Creo’s a medical technology company specialising in electrosurgical devices. These treat pre-cancer and cancer patients with greater accuracy, minimising damage to surrounding tissue during endoscopic (minimally invasive) surgery.
The firm’s innovative flagship product, Speedboat, can inject, dissect, and coagulate (promote clotting) through a single instrument. This is powered by a technology platform called Croma, which integrates advanced microwave and radiofrequency energy sources.
This can turn what would typically be a diagnostic endoscopy into a minimally invasive procedure, creating better outcomes for patients and saving healthcare systems a small fortune.
For example, recent NHS Supply Chain data confirmed net cash savings of £687k from 130 Speedboat procedures at one NHS Trust. That’s just over £5,000 saved per procedure.
A high-growth business
Last year, the firm reported revenue of £30.8m. Brokers see that increasing by 29% this year to reach around £40m before topping £53m in 2025 (32% year-on-year growth). So revenue’s expected to accelerate which, as a shareholder, I’m hoping will be a positive for the stock.
However, the company’s yet to turn a profit. It recorded a £21.7m net loss last year. This lack of profitability’s a key risk with the stock and largely explains its decline.
Again though, progress is being made here. The firm expects to achieve cashflow break even in 2025, while forecasts see the pre-tax loss shrinking to around £4m by then. It ended last year with a net cash position of £18.5m.
More growth seems likely
Interestingly, the share price was above 200p as recently as August 2021 when the firm was posting only £9.4m in revenue. Now that figure’s forecast to surge above £53m and the share price is down at 28p.
It wouldn’t surprise me to see the stock rise above 100p again if the firm keeps growing and, crucially, moves closer to profitability.
More growth seems likely to me. Its latest Speedboat UltraSlim device, which improves compatibility with a broader range of endoscopes, is already being used in the EU, US, Latin America and Asia Pacific.
Meanwhile, its training programme continues to grow worldwide users, with a 119% increase over the course of 2023. The more surgeons trained, the more procedures are likely to occur, increasing Creo’s revenue from the single-use instruments that need to be replaced after each procedure.
I added to my holding in July. Now I’m crossing my fingers for those 100%-200% share price gains!
This post was originally published on Motley Fool
