Shares of Kromek (LSE: KMK) have enjoyed a strong run this year, rising from 22.5p to a recent high of 36p. The company today released its results for its financial year ended 30 April and with the shares down 8.6% on yesterdays close, this is a stock that is interesting me at a current price of 33p.
Ramping up revenues
Kromek is a radiation detection technology company focused on the medical, security screening and nuclear markets. It said 2016/17 wasanother year of good progress and ramp-up in commercial activities with revenue growth driven by higher product sales across [its] three key target markets.
Revenue for the year increased 7.5% to 9m but 2017/18 will see a step change as revenue comes through on large-scale contracts that have been secured over the last 24 months. Management said: The group expects to report year-on-year revenue growth of approximately 40%, in line with market expectations. So were looking at about 12.6m.
Kromek isnt currently profitable, reporting a 3.1m bottom-line loss today, having expensed 3.5m of research costs for products and platforms that it said are linked to existing contract deliverables and significant future revenue opportunities.
The company had cash of more than 20m on its balance sheet at year-end (thanks to a fundraising in January) and has a good number of institutional investors on its shareholder register. While the cash pile means Im unconcerned by Kromeks current lossmaking status, it also means I have to value it on revenue rather than profit at this stage.
Valuation
At the current share price of 33p, the market capitalisation is 85m, so the stock trades at 6.8 times next years guided revenue of 12.6m. This looks an enticing multiple to me for an early-growth business, whose advanced patent-protected technologies are gaining increasing traction in the attractive medical, security screening and nuclear markets.
The shares appear very buyable to my eye, although as a higher-risk investment this is a stock I would only take a small stake in at this stage of its development.
Demographics growth driver
ConvaTec (LSE: CTEC) is another stock in the health sector Ive got my eye on. This FTSE 100 firm is a lower-risk proposition than Kromek but, like the small-cap, its share price has fallen back somewhat after a strong run. ConvaTecs shares climbed from 234p at the start of the year to a high of 344p but are currently trading at 327p.
In a Q1 trading update released last month, the company reported revenue growth in its Advanced Wound Care and Ostomy Care divisions of 4.2% and 3.3% respectively. It sawflat revenue in Continence & Critical Care (due to margin improvement measures) and a 3.1% decline in Infusion Devices division (due to anticipated customer inventory reductions). But management reaffirmed its previous guidance for 2017 of group organic revenue growth in excess of 4% at constant currency.
On the back of this, the City consensus is for ConvaTec to deliver earnings per share of $0.20 (15.6p), giving a price-to-earnings ratio of 21. This is not a premium rating by the sector standards and with demographics providing a long-term driver for growth, the shares appear to be an attractive buy.
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