Last year saw vaccine stocks soar as pharma companies raced to be the first to deliver a working Covid-19 vaccination. In 2021, I think we could see similar strong growth from businesses with products that can help us get back to normal life. I reckon that newly listed textile firm HeiQ (LSE: HEIQ) could be one such share.
Since it joined the London market in December, HeiQ’s share price has already risen by 70%.
What does it do?
HeiQ appears to have timed its entrance well. The firm’s specialty is treating textiles to make them more functional. This can mean adding an antiviral treatment or making fabrics breathable, water repellent, and odour-free. The company even promises to provide “air purifying” sofas and curtains.
Existing customers mostly seem to be in the clothing sector — names such as Sloggi, Speedo, Patagonia, The North Face, and New Balance were mentioned in a recent presentation.
However, I don’t think it’s too hard to imagine much broader demand in the future for products such as HeiQ Viroblock, which is said to be a “world leading” antimicrobial technology. For example, HeiQ already offers antiviral treatment for aircraft interiors, but I could see this extending to other forms of public transport and the hospitality sector.
Does it make money?
A good story is always exciting, but I don’t buy shares in loss-making start-ups. The risks are too high for my style of investing. Luckily, HeiQ has been in business for 15 years and is already profitable.
According to figures provided by the company when it joined the stock market, annual sales rose from $21m in 2017 to $28m in 2019. 2020 saw a massive surge in growth, with half-year sales of $30m.
HeiQ’s operating profit rose to almost $11m during the first half of last year. This suggests an operating profit margin of more than 30% — an impressive figure.
I’m not sure if this level of profitability can be maintained or if this includes one-off gains relating to the pandemic — for example, PPE sales. However, even if we assume that profits flatten out this year, the stock’s valuation doesn’t seem outrageous to me. I estimate that HeiQ’s share price of 210p might value the stock on about 17 times earnings. I don’t think that’s excessive for a profitable growth stock.
HeiQ shares: my verdict
HeiQ is still below the radar for most private investors. But if the firm can deliver on its potential and maintain recent growth, I think we could be hearing a lot more about this business.
Don’t get me wrong — buying HeiQ shares isn’t without risk. Growth stocks like this don’t always deliver as hoped. I also feel that a lot of growth is already priced into the stock. For these reasons, I wouldn’t put more than a small percentage of my portfolio into this stock.
However, despite my concerns I can see serious growth potential here if things go well. If I was buying a small growth stock today, HeiQ would be on my short list for further research.
