Last weekGraphene Nanochem(LSE:GRPH) issued its half-year trading update, which came in below expectations and sent the companys share price plummeting by around 30%.
To me, these declines looked to be excessive and it seems as if the market agreed with me. After hitting a low of 38.7p on 30 September, the companys shares have rallied strongly and are currently trading just above62p, a full 61% above the low hit last week.
However, Graphenes shareholders still have plenty to look forward to. Here are three reasons why you should consider buying in today.
Rapid sales growth
The one thing that stood out within Graphenes first-half results was the companys rapid revenue growth.Graphene reported a 102% increase in revenue to 20.4m for the first half of the year. Unfortunately, due to the slower-than-expected development of its PlatDrill Series of oilfield chemicals, the companys earnings failed to register the same kind of growth.
Nevertheless, for the first half Graphenes losses narrowed from5.4m to3.5m. So, as soon as the company gets the development of itsoilfield chemicals back on track, profitabilityshould follow.
Graphenes rapid sales growth indicates that theres a strong demand for the companys advanced materials and todays news confirms this.Indeed, it was revealed today that Graphene has won awon a second commercial order for its PlatDrill Series chemicals worth $4.8m around 3m, or 15% of first half revenue.
The order for 23,400 barrels is three times more than the first order for the Plat chemicals and was placed by Asian oil services provider,Scomi Oiltools.
Scomi Oiltools has a current order backlog of 1bn and gives Graphene a great client-base with which to test its new product on. Hopefully, Scomi Oiltools clients will quickly recognise the benefits of the PlatDrill chemicals, boosting Graphenes business.
As mentioned above, Graphene was expected to report a small profit this year. However, due to development delays the company now expects to report a loss for full-year 2014.
Still, with sales growing rapidly, Graphene is likely to report a profit next year. It seems reasonable to suggest the company could report a 2015 profit similar to the one previously expected by City analysts this year.
On that basis, Graphene is set to report a pre-tax profit of 2.9m next year, or earnings per share of 2.3p, implying that Graphene is trading at a forward P/E of 27. This may look expensive at first but Graphenes sales are set to double this year, thats growth worth paying a premium for.
Still, like all small caps, Graphene isnot a sure thing and while the company is set for growth, the shares are only suitable for investors with a high risk tolerance. Small-cap investing is a risky business — and theMotley Fool is here to help. Throughout October,theMotley Fool Champion Shares PROservice is admittingnew members for its Autumn reopen.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.