Shares of Creo Medical (LSE: CREO) have a had a rough ride over the last three years. They were changing hands for 215p in March 2021. Then they plunged 90% to reach a nadir of 19p just over a year ago.
That gave the company a market cap of less than £100m and made it a penny stock.
However, the shares have since nearly doubled to reach 36p, and I think they could fly higher. Here’s why.
Innovative technology
For those unfamiliar, Creo is a medical device company. Its flagship product, Speedboat Inject, is a multimodal instrument designed for use in flexible endoscopic (minimally invasive) surgery.
There’s quite a big of jargon in that sentence. What does it mean?
Well, put simply, the firm’s electrosurgical devices are used in procedures where an endoscope is put inside a patient’s body. An endoscope is a thin, flexible tube with a light source and camera at one end.
Creo’s versatile Speedboat product offers the ability to dissect, resect, coagulate (clot), and inject in a single device.
It can deliver both advanced bipolar and microwave energy, which offers advantages over traditional techniques. These include:
- More precise cutting and dissection compared to just using a radiofrequency blade.
- Potentially less thermal damage to surrounding healthy tissue.
- Faster and more efficient procedures for surgeons.
- Reduced complications for patients during and after surgery.
- Potentially better patient recovery times.
Its latest miniaturised device, Speedboat UltraSlim, has already been used in procedures worldwide to treat precancerous lesions in the colon, oesophagus, and stomach.
Growing nicely
Last year, Creo expects to have grown its revenue to £30.8m, a 13% year-on-year increase. This year, its top line is forecast to accelerate 24% to £40.6m.
The confirmed number of device users rose around 120% last year. That’s encouraging as the firm makes money from the sale of consumables after the products are deployed in healthcare locations. More devices being used by more surgeons means more revenue coming in.
However, one issue here is that the firm still isn’t profitable. It only started generating revenue in 2020 and expects an underlying EBITDA loss of £16.4m for 2023.
So one risk here is that it might need additional funding at some point, and this could cause share price volatility and dilution.
That said, Creo management said it is confident of reaching cash flow break-even in 2025. It then expects profits to follow after that.
Attractive opportunity
As we all know, NHS waiting lists for operations are massive. Creo estimates that Speedboat Inject saves the NHS time and nearly £5,000 per procedure. Therefore, it should see rising demand from hospitals.
Meanwhile, Speedboat UltraSlim is now compatible with all routine endoscopes worldwide. This has significantly expanded the firm’s total market opportunity.
Additionally, Creo has started clinical market development of its MicroBlate Flex range of devices. These provide flexible microwave ablation – the removal of abnormal or diseased tissue using energy — and have been used on lung tumours.
Again, this is another huge potential market.
The stock is trading on a forward price-to-sales (P/S) multiple of three, which isn’t expensive. Pair this with the share price’s three-year slump and I think it looks very attractive. I’d buy more shares with spare cash.
