1 FTSE small-cap stock I’m buying before the next bull market!

This writer has identified a FTSE share to add to his ISA after the firm has been cleared to start selling its products in the huge US healthcare market.

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Many small-cap stocks on the FTSE have struggled in the last two years with interest rates rising sharply in response to surging inflation.

Higher rates naturally lead to concerns about higher borrowing costs for all companies, especially smaller ones. They also make other asset classes (such as cash) more attractive.

However, as a long-term investor, I’m interested in finding stocks that I think could outperform over the next decade or more to help me build wealth.

Moreover, history tells me that uncertain economic conditions don’t last forever. At some point, things improve and a higher risk appetite begins to emerge.

The next bull market will then likely take shape, meaning I could profit handsomely by taking advantage of weak market sentiment today.

Permanent demand

So, what’s the stock I’m buying?

Well, right now, I’m keen to acquire shares of Tristel (LSE: TSTL), a maker of infection prevention products for hospitals.  

The company’s core business is the decontamination of medical devices under its namesake brand (86% of total sales). It also sells sporicidal disinfection for hospital surfaces under the Cache brand.

Admittedly, the decontamination of medical equipment and settings doesn’t sound that exciting. But devices used in a patient’s body, as well as all hospital surfaces, obviously need to be constantly cleaned. This permanent demand leads to stable revenues for Tristel.

Reassuringly, the firm’s products are used in every hospital in the UK, meaning they’re high-quality and trusted. And they’re backed up by proprietary chlorine dioxide chemistry, which should continue to offer the firm a competitive advantage as it expands.

Exciting US approval

With the UK market largely saturated, the company has been targeting international growth. And great progress is being made here.

In FY23 (which ended on 30 June), the firm reported £6.2m in adjusted pre-tax profit, a 37% year-on-year increase. This was driven by a 16% rise in turnover (£36m), with overseas sales up 17% to £23.5m.

That means around 65% of its revenues were generated outside of the UK. And I’d expect that to only increase as its products have started to be approved by the Food and Drug Administration (FDA) in the US. This has enabled it to enter the largest healthcare market in the world.

FDA approval will also act as a springboard to enter Central and South America.

Looking ahead, the company says its financial outlook is the strongest in its 30-year history.

The premium valuation could be worth it

Despite falling 38% since July 2021, the share price is still up 72% over the last five years.

This gives Tristel a market cap of £195m, with the shares trading at 27 times next financial year’s forecast earnings. That’s a significant premium to the market and may prove risky if US growth underwhelms.

Despite this, I’m bullish long term. The pandemic has only raised global awareness of the need to make all clinical spaces completely sterile. And the business is debt-free and profitable, with a very high gross margin (81%). That’s a solid foundation to push for international growth.

Plus, the stock carries a 2.6% dividend yield, with the payout now expected to grow at a minimum of 5%.

All in all, then, I think this will be an excellent addition to my portfolio.

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.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Tristel Plc. 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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