Is Nanoco Group plc a small-cap growth stock to buy after soaring 50% today?

Shares in Nanoco Group plc (LON: NANO) surge on new nanotechnology contract.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Back in October, my Foolish colleague Rupert Hargreaves reckoned that the future for Nanoco Group (LSE: NANO) hinged on its ability to sign up new customers. That’s really the only way for investors to tell if its technology is all it’s cracked up to be.

The share price had slumped at the time, and by market close Wednesday we’d seen a fall of more than 60% since a peak in July 2017.

But Thursday saw a 50% spike, with the price reaching 36.5p in morning trading, after the company revealed it has signed a supply and development agreement with an as-yet-undisclosed US company.

Nanoco said the deal means it “will scale-up and mass-produce novel nano-particles for advanced electronic devices and supply them from its state-of-the-art production facility in Runcorn, UK.

Expanding the Runcorn facility to cope with the quantity of materials needed will require capital expenditure, and the contract partner will contribute.

Turning point?

These are obviously still early days, but with commercial supply expected to begin in early 2019, it’s looking like a serious stream of cash really might not be too far in the future now. Liquidity was always going to be a key issue as it is with any ‘blue sky’ growth company — even if it’s successful, early investors can still be diluted out, depending on how much cash needs to be raised to reach profitability.

Some of that worry has now been lifted, especially as today’s news comes on the back of a couple of earlier agreements. 

With Nanoco having net cash of £5.7m at 31 July 2017, and a placing having raised an additional £8m late last year, I’m cautiously optimistic.

Multibagger

Shares in Elektron Technology (LSE: EKT) have had a better time, trebling in two years to 23.5p, with Thursday’s full-year trading update providing a small boost.

The cloud-based technologist reported a 10.9% rise in total sales for the year.

Checkit, which “continues to make progress with its real-time operations management product suite,” brought in a 66.7% rise in sales. That is the firm’s smallest unit, though, with just £0.5m in sales, but Elektron’s biggest business seems to be performing solidly too — sales of £27.3m from the Bulgin arm amounted to a 13.3% rise.

The only sales downside came from IMC, with a 12.9% fall to £2.7m.

Orders received during the year amounted to £33.1m, up 17.8%. Net cash rose from £1m at 31 January 2017 to £5.1m a year later, though that does include £1.9m from the disposal of Sheen Instruments, Digitron and Titman Tip Tools.

Should we buy?

Elektron told us its order book for the new financial year currently stands at more than £9m, which looks like a healthy start. And its disposals, it says, enable it to “focus solely on the businesses which the board believes offer greatest potential for growth.”

The problem is, it’s difficult to value the shares right now, as the company appears to be just on the point of turning a profit. Results for the first half showed an operating profit of £0.1m (from a loss of £1m a year previously), and positive EPS of 0.1p (from a loss of 0.6p). 

I’d want to see full-year results, and maybe one more year’s worth, in order to put some meaningful fundamentals together. For now I’m on the fence.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Newspaper and direction sign with investment options
Investing Articles

When cheap markets meet favourable conditions, sentiment flips very quickly

London’s stock market is cheap — some sectors, even cheaper. Given a change in sentiment, the uprating could be substantial.

Read more »

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »