It’s not often I put thousands of pounds into one UK growth stock. But my research has led me to handpick this one opportunity, and I’m buying more.
With an expected 948% increase in earnings in the next 12 months, I think Hvivo (LSE:HVO) could be a winner for me.
Hvivo shares shot up to a peak of 38p amid the global investor frenzy around Covid stocks. Today the shares are worth half that, at around 20p. So why am I adding to my position?
I first noticed Hvivo during the pandemic when its market cap was a tiny £30m. Today the company is worth around £135m.
It runs human challenge clinical trials for flu and other respiratory illnesses. its scientists expose healthy volunteers to infection under strict quarantine standards. They’re then given potential treatment medicines from major biopharma companies, including Pfizer.
The studies are incredibly valuable for Hvivo’s clients because they create cost-effective data much faster than other testing methods.
Poorly-understood illnesses like long Covid and other respiratory viruses loom large over the global population.
And since 2020 the number of pharma companies testing vaccines and antivirals has soared. This is creating booming demand for Hvivo’s services.
Analysts see its bottom line improving from a £770,000 net loss in 2022 to a £7.54m profit in 2023. That’s the predicted 948% earnings increase I mentioned earlier. The company has also this year increased its profit margins from under 13% to 19%, and upped its revenue guidance.
Adding to this year’s record £78m order book is a £6.8m contract signed in February, followed by a £13.1m contract win in July.
Results released in September showed profit for the first half of the year up 126% to £5.2m. Net cash has also doubled to £31.3m (around 4.6p per share) in the last 12 months. Analysts have upgraded their earnings estimates for the next two years by 62% and 46%, respectively.
Risk and rewards
A quick word on risks though. Hvivo is listed on the UK’s AIM market. AIM shares are generally less liquid — that is, there are fewer buyers and sellers — than companies on the FTSE 100 or FTSE 250.
The other main risk (as with all growth stocks) is that expectations might not meet reality. That 948% increase could fall short, for instance, putting off new investors. For me, this is a calculated risk. I’ve taken into account what I think is a realistic assessment of the company’s mis-steps and successes to date.
Additionally, testing infectious and respiratory diseases on human volunteers remains a controversial practice.
Yet in my opinion, the risk is mitigated by Hvivo’s track record in running successful studies, along with having on-site immunology and virology laboratories.
Hvivo is a picks and shovels play for my investment portfolio. Instead of bottomless R&D spending on creating vaccines or treatments? Hvivo only helps to test those medicines, and is paid handsomely for doing so.
Back in 2020, I wrote for The Motley Fool that I thought Hvivo shares could double my money.
They have — and more.
And with these analyst upgrades, I see even better growth ahead. So I’m doubling down again on Hvivo.