Is hVIVO still a top UK stock for growth after today’s full-year results? 

This UK stock has risen roughly 370% over the last five years. But Edward Sheldon believes it has the potential to keep rising.

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One UK stock I’ve been quite bullish on recently is hVIVO (LSE: HVO). It’s a small healthcare business that offers services for clinical trials and lab testing and serves four of the 10 largest biopharma companies worldwide.

This morning (9 April), the company – which is listed on the UK’s Alternative Investment Market (AIM) – posted its full-year results for 2023. Is it still a good stock to consider for growth? Let’s take a look.

2023 numbers

Today’s full-year results look pretty good, in my view.

For the year, revenue came in at £56m, up 16% year on year. Meanwhile, adjusted earnings per share (EPS) amounted to 1.27p, up 32%.

Encouragingly, the EBITDA (earnings before interest, tax, depreciation, and amortisation) margin was up significantly at 23.3% versus 18.7% for 2022.

It was also encouraging to see the company announce an annual dividend policy and start off with a payment of 0.2p per share.

Guidance

Looking ahead, guidance was healthy.

For 2024, the group expects revenue of £62m with growth to be H1 weighted.

It added here that 90% of this 2024 revenue guidance is already contracted with good visibility into 2025 (it had a weighted contracted orderbook of £80m at the end of 2023).

Looking further out, the company is hoping to grow its revenues to £100m by 2028 through a combination of strong organic growth and small bolt-on acquisitions.

It noted that the group’s strong cash position (cash and cash equivalents of £37m at the end of 2023) underpins its M&A strategy.

The Company remains confident that 2024 will be another year of significant growth

hVIVO 2023 results

Plenty of potential

Looking at these numbers, I do still see hVIVO as a good stock for growth.

Clearly, the company plans to grow its top line significantly in the years ahead.

One thing that should help here is its upcoming move to a new state-of-the-art facility in Canary Wharf, London. This move will increase the group’s revenue potential (the facility will be the world’s largest commercial human challenge trial unit) and position the company for further profit margin improvements.

As for the valuation, it’s quite reasonable, in my view. If we take the 2023 EPS figure of 1.27p, the trailing price-to-earnings (P/E) ratio is only 22. That’s not so high, given the level of revenue and earnings growth the firm is generating.

It’s worth noting that last month, analysts at Peel Hunt initiated coverage of the stock with a ‘buy’ rating and a price target of 36p (nearly 30% above the current share price).

One other thing that’s worth mentioning here is the new dividend policy. The fact that the company has announced that it will start paying annual dividends suggests that management is very confident about the future.

Of course, there are risks to consider here. One is a dip in profits. As a small growth business (the market cap is just £200m), hVIVO doesn’t yet have a long-term track record of consistent profitability.

Another is competition. The firm has noted that some of its competitors have substantially greater resources than it does.

Overall though, I think the stock has a lot going for it. If I was looking to add to my UK growth stock holdings, I would definitely consider shares in hVIVO.

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.

Edward Sheldon 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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