A small-cap share soars 25% on Covid-19 test news. Here’s what I’d do now

Covid-19 tests could generate bundles of cash for companies that make them. But will this small-cap’s shares continue to fly?

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Young woman wearing face mask while walking in the streets of London

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BATM Advanced Communications (LSE: BVC) isn’t a name that would make me immediately think of biotechnology development. But on Tuesday, the firm told us its “Adaltis subsidiary has launched ELISA Serological Test Kits that diagnose if a patient has had Covid-19 by detecting antibodies against it present in their blood.”

The immediate result was a 28% spike in the share price. At the time of writing, the shares have fallen back to a gain of around 20%. But that’s still a pretty nice morning’s profit.

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Israel-based BATM describes itself as “a leading provider of real-time technologies for networking solutions and medical laboratory systems.” Its shares had already been climbing since the pandemic lockdown started, on the back of other coronavirus-related business.

The announcement of a tie-up with life sciences company Novamed in March, for the development of a kit to detect the Covid-19 virus itself, provided a boost. And April’s $31m order to produce ventilators won’t do the firm’s balance sheet any harm.

Not just Covid-19

Since the pandemic commenced its assault on the UK stock market, BATM shares are up around 60%. But the company isn’t just a one-hit Covid-19 wonder. No, the BATM share price has five-bagged over the past five years.

My Motley Fool colleague Kevin Godbold was extolling the virtues of this “dynamic small-cap” in August 2018. While Sirius Minerals was a growth darling at the time, he’d spotted how much better BATM shares were doing. I’m sure I’m one of many who wish they’d listened to Kevin back then.

But back to this Covid-19 antibody test. The company has already shipped initial orders to several European countries. And it says it’s “now ramping up production for larger quantities to fulfil further orders received from these customers.”

Why I’m cautious

Covid-19 antibody testing is likely to play a key role in the opening up of lockdown conditions. It identifies those who have been infected and have recovered, and may have immunity. But I’m cautious about piling into BATM shares for several reasons.

One is that the degree of immunity developed after an infection is unknown, and there are fears it might not be very strong. Secondly, a number of companies are making Covid-19 antibody tests. And a lot of them aren’t sufficiently accurate to be of any general use.

Short-term

But my final reason for caution is short-termism. Assuming a Covid-19 vaccine is possible, once one is developed and in widespread use, there’ll be no need for antibody tests. Or for any more emergency supplies of ventilators.

This new test, plus the virus test BATM is working on, might well add handsomely to this year’s profits. And maybe even next year’s. But that could well be the end of it.

I’m not saying don’t buy BATM shares. By all means, get in if you like the look of the company. I just urge any potential investor to base your decision on how you see BATM’s long-term prospects, not just on a short-term Covid-19 boost.

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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.

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